Geothermal Policy Options and Instruments for Ukraine · Evaluation of opportunities and potential...

Geothermal Policy

Options and Instruments

for Ukraine Based on Icelandic and International

Geothermal Experience

Report Prepared for the Ministry for Foreign Affairs in Iceland

April

2016

Geothermal Policy

Options and Instruments

for Ukraine Based on Icelandic and International

Geothermal Experience

Report Prepared for the Ministry for Foreign Affairs in Iceland

Orkustofnun,

National Energy Authority

Iceland

April 2016

2

Publisher: Orkustofnun, Grensásvegi 9, 108 Reykjavík Tel: 569 6000, Fax, 568 8896 Email: [email protected] Website: http://www.nea.is/ Editors: Baldur Pétursson, Jónas Ketilsson. Cooperation Team: Guðni A. Jóhannesson, Alicja Wiktoria Stoklosa, Jón Ragnar Guðmundsson, Sveinbjörn Björnsson, María Guðmundsdóttir, Erla Björk Þorgeirsdóttir, Kristján Geirsson, Skúli Thoroddsen, Rakel Jensdóttir, Hanna Björg Konráðsdóttir, Ingimar G. Haraldsson, Lúðvík S. Georgsson, Þorvaldur Bragason, Anna Lilja Oddsdóttir, Linda Georgsdóttir, Jón Ásgeir Haukdal, Kristinn Einarsson, Benedikt Guðmundsson, Sigurður Ingi Friðleifsson, Jakob Björnsson, Harpa Þórunn Pétursdóttir, Erna R. Bragadóttir and Petra S. Sveinsdóttir. Geothermal Policy Options and Instruments for the Ukraine, is published on the Orkustofnun website

and printed in limited copies.

OS-2016-01 ISBN 978-9979-68-380-3 Material may be reproduced from the Report, but an acknowledgement of source is kindly requested. April 2016

http://www.nea.is/

3

Table of Contents

ACKNOWLEDGEMENTS ....................................................................................................................... 5

INTRODUCTION ..................................................................................................................................... 6

EXECUTIVE SUMMARY ......................................................................................................................... 8

CONCLUSION AND RECOMMENDATIONS ....................................................................................... 10

I. GLOBAL GEOTHERMAL EXPERIENCE ...................................................................................... 16

1. DEVELOPMENT OF THE GEOTHERMAL SECTOR WORLDWIDE .............................................. 16

1.1. OVERVIEW AND CHALLENGES OF THE GEOTHERMAL SECTOR .......................................................... 16 1.2. RENEWABLE / GEOTHERMAL POLICY – OPTIONS AND INSTRUMENTS ................................................ 18 1.3. SUPPORT FOR RENEWABLE ENERGY IN THE EUROPEAN UNION ....................................................... 21

1.3.1. Operational Support ............................................................................................................ 21 1.3.2. Financial Support ................................................................................................................. 22

2. DEVELOPMENT, COMPETITIVENESS AND RISKS OF GEOTHERMAL PROJECTS................. 25

2.1. RISK AND FINANCING OF GEOTHERMAL PROJECTS ......................................................................... 25 2.2. COMPETITIVENESS OF GEOTHERMAL TECHNOLOGY – COMPARISON ................................................ 26 2.3. COST AND STRUCTURE OF GEOTHERMAL PROJECTS ...................................................................... 27 2.4. GEOTHERMAL DISTRICT HEATING .................................................................................................. 28

2.4.1. Cost Structure of Geothermal District Heating .................................................................... 28 2.4.2. Policy towards Geothermal District Heating in Europe ....................................................... 30 2.4.3. Legal, Financial and Cost Structure of Geothermal District Heating Projects ..................... 32 2.4.4. Global Price Comparison of Geothermal District Heating ................................................... 35 2.4.5. The Geothermal Global Market Structure ........................................................................... 36 2.4.6. Demo I - Business Model for Geothermal District Heating and Gas ................................... 37 2.4.7. Demo II - Business Model for Geothermal District Heating and Gas .................................. 41

3. INTERNATIONAL DEVELOPMENT AND FINANCING OF GEOTHERMAL PROJECTS ............. 47

3.1. INTERNATIONAL DEVELOPMENT MODELS OF GEOTHERMAL PROJECTS ............................................ 47 3.2. INTERNATIONAL FINANCING MODELS OF GEOTHERMAL PROJECTS................................................... 47

3.2.1. Financing Options for Different Project Phases .................................................................. 48 3.2.2. Geothermal Development Assistance – Global Lessons Learned ...................................... 49

II. GEOTHERMAL RESOURCES AND OPPORTUNITIES IN UKRAINE ........................................ 50

4. UKRAINIAN GEOTHERMAL CHALLENGES AND OPPORTUNITIES .......................................... 50

4.1. UKRAINE NATIONAL RENEWABLE ENERGY ACTION PLAN, TO 2020 .................................................. 50 4.1.1. Policy Overview ................................................................................................................... 50 4.1.2. Geothermal Energy ............................................................................................................ 53 4.1.3 Implementations Priorities .................................................................................................... 53

4.2. GEOTHERMAL POTENTIAL IN EUROPE............................................................................................. 55 4.2.1. Heat Production from Geothermal sources in European Union .......................................... 55

4.3. GEOTHERMAL CONDITIONS IN UKRAINE .......................................................................................... 56 4.3.1. Overview of Geothermal Potential Resources in Ukraine ................................................... 57 4.3.2. Development Forecast of Geothermal Capacities in Ukraine ............................................. 59 4.3.3. Assessment Results of Potential Geothermal Resources in Ukraine ................................. 61 4.3.4. Priority Development of Geothermal Resources in Ukraine ................................................ 62

4.4. THE USE OF GEOTHERMAL AND MINERAL WATERS IN THE AREA OF UKRAINIAN CARPATHIANS ........... 63 4.4.1. The use of Geothermal Waters in Carpathian Ukraine ....................................................... 63 4.4.2. The use of Geothermal Waters for Heating Purposes in Ukraine ....................................... 64 4.4.3. The use of Geothermal Waters in Ukraine - Electricity Production ..................................... 65 4.4.4. Prospective Areas of use of Geothermal Energy in Carpathian Ukraine ............................ 66 4.4.5 Geothermal Projects in Carpathians .................................................................................... 67

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4.4.6. Prospective Areas of use of Geothermal Energy in Zakarpattia Region ............................. 69 4.4.7. Prospective Areas of use of Geothermal Energy in L’viv Region ....................................... 70

4.5. THE CIS-CARPATHIAN DEPRESSION .............................................................................................. 71 4.5.1. Cis-Carpathian ..................................................................................................................... 71

4.6. ADDITIONAL AREA OF INTEREST FOR GEOTHERMAL DISTRICT HEATING ........................................... 74 4.7. SUMMARY OF POTENTIAL AREA FOR GEOTHERMAL DISTRICT HEATING IN WEST UKRAINE ................ 76

4.7.1. Potential Area for Geothermal District Heating in West Ukraine ......................................... 76 4.7.2. The Authorities have made Progress in Reforming the Inefficient Energy Sector .............. 82 4.7.3. Legislative base of Geothermal Energy in Ukraine ............................................................. 82

4.8. THE DISTRICT HEATING SYSTEM IN UKRAINE .................................................................................. 83 4.8.1. Modernization of the District Heating Systems in Ukraine .................................................. 83 4.8.2. What Needs to Happen Next ............................................................................................... 85 4.8.3 What Can the International Financial Institutions Do to Help? ............................................ 87

4.9. COMPETITIVENESS OF THE GEOTHERMAL SECTOR IN UKRAINE........................................................ 88 4.9.1. Opportunities and Policy Options ........................................................................................ 89 4.9.2. Demo – Example of possible Geothermal District Heating Project in Eastern Europe ....... 90

4.10. OPPORTUNITIES AND POLICY OPTIONS FOR UKRAINE ................................................................... 91 4.10.1. Proposal - Two Steps, 1. Pre-Feasibility Study and 2. Project Implementation ................ 92 4.10.2. Proposal – Step 1 - Pre- Feasibility Study of Geothermal District Heating in Ukraine ...... 93

III. GEOTHERMAL DEVELOPMENT AND EXPERIENCE IN ICELAND ......................................... 95

5. GEOTHERMAL RESOURCES IN ICELAND ................................................................................... 95

5.1. THE NATURE OF GEOTHERMAL RESOURCES .................................................................................. 95 5.2. THE NATURE OF OW-TEMPERATURE SYSTEMS ................................................................................ 96 5.3. GEOTHERMAL FOR INDUSTRIAL USE ............................................................................................... 96 5.4. WELLS IN USE IN ICELAND .............................................................................................................. 97 5.5. THE HISTORY OF GEOTHERMAL DISTRICT HEATING ........................................................................ 97 5.6. PUBLIC SUPPORT OF GEOTHERMAL DISTRICT HEATING .................................................................. 98

5.6.1. Demo – Icelandic Geothermal District Heating Project in Operation ................................ 100 5.7. ECONOMIC IMPACT ...................................................................................................................... 101

6. GEOTHERMAL DEVELOPMENT .................................................................................................. 105

6.1. DEVELOPMENT IN ICELAND .......................................................................................................... 105 6.2. DRILLING FOR GEOTHERMAL WATER AND STEAM ......................................................................... 107 6.3. SUCCESS OF HIGH TEMPERATURE GEOTHERMAL WELLS IN ICELAND ............................................. 109

7. LEGAL AND INSTITUTIONAL FRAMEWORK IN ICELAND ........................................................ 110

7.1. INTRODUCTION ............................................................................................................................ 110 7.2. THE ACT ON SURVEY AND UTILISATION OF NATURAL RESOURCES ................................................. 111 7.3. THE ENVIRONMENTAL IMPACT ASSESSMENT ACT ......................................................................... 114 7.4. ACT ON MASTER PLAN FOR THE PROTECTION AND UTILISATION OF ENERGY RESOURCES .............. 114

8. COMPETITIVENESS, INTERNATIONALISATION AND CLUSTERS OF THE ICELANDIC

GEOTHERMAL SECTOR ................................................................................................................... 117

8.1. ICELAND, WB AND NDF - INTERNATIONAL GEOTHERMAL COOPERATION IN AFRICA ............................................ 117 8.2. CLUSTERS AND COMPETITIVENESS OF THE ICELANDIC GEOTHERMAL SECTOR ............................... 118 8.3. INTERNATIONAL COOPERATION OF THE ICELANDIC GEOTHERMAL SECTOR ..................................... 120

8.3.1. International Work and Projects of the Business Sector ................................................... 120 8.3.2. EEA Grant Cooperation in Eastern Europe ....................................................................... 121 8.3.3. UNU – GTP Programmes .................................................................................................. 123 8.3.4. ERA Net Cooperation ........................................................................................................ 124 8.3.5. Additional International Geothermal Promotion ................................................................ 126

9. CAPACITY BUILDING IN ICELAND .............................................................................................. 127

10. CONCLUSIONS AND LESSONS LEARNED IN ICELAND ......................................................... 128

REFERENCES .................................................................................................................................... 130

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Acknowledgements This report was prepared by a team within the National Energy Authority of Iceland (Orkustofnun)

working on International Geothermal Programs and Projects, but drew on resources throughout both

domestic and international institutions.

Chapter I on Global Geothermal Experience was based on references and information from several

international resources, e.g. EGEC and GEODH, European Commission, World Bank - ESMAP,

Bloomberg Energy and domestic sources from National Energy Authority, Mannvit and others.

Chapter II on Geothermal Resources and Opportunities in Ukraine was based on references and

information e.g. from European Bank for Reconstruction and Development (EBRD), World Bank, US

Aid, European Union, IRENA, IEA, Ministry for Foreign Affairs in Ukraine, State Agency on Energy

Efficiency and Energy Saving of Ukraine (SAEE) and Institute for Renewable Energy (IRE) in Ukraine,

the University of Krakow in Poland, Ministry for Foreign Affairs in Iceland and the National Energy

Authority of Iceland.

Chapter III on Geothermal Experience and Development in Iceland, was based on the contribution of

the staff from the National Energy Authority in Iceland, Landsvirkjun, Geothermal ERA NET, the

Icelandic International Development Agency (ICEIDA) and Ministry for Foreign Affairs and Ministry for

Industry and Commerce. The chapters start with information regarding the main references and

resources.

We would like to give special thanks to the following people: Mr. Vasyl Khymynets Ministry for Foreign

Affairs in Kiev, Mr. Serhiy Savchuk, Mr. Maksym Polischuk and Ms. Lenska Olean, State Energy Agency

on Energy Efficiency (SAEE) Kiev, Mr. Yuriy P. Morozov and Oleg Lysak Ukrainian Academy of

Sciences Institute of Renewable Energy in Kiev.

We would also like to give special thanks to Mr. Þráinn Friðriksson and Mr. Pekka Salminen at the World

Bank in Washington, Mr. Dmytro Glazkov from World Bank Kiev, Mr. Sergiy Maslichenko European,

Bank for Reconstruction and Development (EBRD) Kiev, Mr. Adonai Herrera-Martínez, EBRD in Turkey,

Ms. Monica M. Sendor, Embassy of the United States in Kiev, Mr. Luis Velazquez US AID in Kiev,

Dr. Beata Kepinska and Mr. Marek Hajto Polish Geothermal Society. And last but not least, we would

like to thank Mr. Benedikt Höskuldsson, Ms. Kristín A. Árnadóttir and Mr. Davið Bjarnason from the

Ministry for Foreign Affairs in Iceland.

6

Introduction

The Ministry for Foreign Affairs requested in late 2014 that Orkustofnun (OS – National Energy

Authority), would prepare a geothermal strategy document on how Iceland could support Ukraine to

develop future strategy on utilisation of geothermal resource in certain prioritized areas of Ukraine.

The request was initiated following a visit of the Minister for Foreign Affairs Mr. Gunnar Bragi Sveinsson,

to Ukraine 2014 where cooperation between the countries was discussed, in particular how Iceland

could support the geothermal development in Ukraine by utilizing the expertise and experience of

Iceland in the field of renewable energy.

As a follow up step, the National Energy Authority of Iceland (Orkustofnun) signed a Memorandum of

Understanding in May 2015 with the Ukrainian State Agency on Energy Efficiency and Energy Saving

(SAEE). According to the MoU, the purpose and the goal of the agreement is to:

Develop cooperation between the countries for the mutual realization of events and projects by Ukrainian and Icelandic organisations and companies in the area of energy efficiency, energy savings and renewable energy resources.

Evaluation of opportunities and potential for geothermal energy development in Ukraine based on the analysis of resources and technically achievable aspects in energy potential of geothermal energy in the regions of Ukraine identified as most advantageous and prospective for the above mentioned.

Work on the Report

An integral aspect of implementing the MoU was to prepare a geothermal assessment document that

had the following goal:

Form a strategy on how Iceland could support Ukraine in developing a policy plan for the utilisation of geothermal resources in identified priority areas of Ukraine.

During the work, information was collected from various institutions and contacts, e.g. institutions in

Ukraine, World Bank ESMAP in Washington, Krakow University in Poland and European Geothermal

Energy Council (EGEC) in Brussels, and others referenced in this report.

The collection of geothermal information took more time than initially anticipated and turned to be more

challenging than planned, as detailed information was not very recent nor accurate specifically for

geothermal for various reasons. Geothermal data in Ukraine is old and more importantly the data is

derived from boreholes drilled for oil and gas.

In October 2015, a team from Orkustofnun and the Ministry for Foreign Affairs, held meetings with

following institutions and ministries in Kiev in Ukraine: Ministry for Foreign Affairs, State Agency on

Energy Efficiency and Energy Savings of Ukraine (SAEE), European Bank for Reconstruction and

Development (EBRD), World Bank (WB), U.S. Agency for International Development (US AID) and

Institute for Renewable Energy of the National Academy of Science of Ukraine (IRE).

From these meetings it can be stated that in order to build up geothermal programs and projects in

Ukraine, several steps are required. Overall management of future geothermal programs and projects

will require cooperation with international institutions that have the operational capacity to manage,

finance, implement and evaluate such programs with access to international geothermal experience and

expertise.

One such institution is the European Bank for Reconstruction and Development – EBRD, which is the

biggest international institutional investor in Ukraine and has 346 projects in Ukraine today, with an

investment value of €7,46 billion, where 24% or €1,8 billion is invested in the energy sector. Energy

security is a major policy issue in Ukraine, according to the strategy of the EBRD in Ukraine; the energy

dependency on external supplies is exacerbated by the low efficiency of energy use. Improving energy

efficiency is therefore a key priority for the country.

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Another institution might be the Nordic funding mechanism available, such as NEFCO and NDF,

although at a much smaller scale than EBRD. In addition, the findings of this report indicate that there

is an interest for potential geothermal development among several key countries that support Ukraine

and offer interesting alternatives.

It is significant for future geothermal deployment in Ukraine to identify key partners within Ukraine that

can provide important expertise in different regions of the country. In particular institutions that have

expertise in energy projects at the regional level and can assist in identifying strong partnering

communities in Western Ukraine where this report has found areas most likely to possess necessary

geothermal resources for district heating development.This report highlights options and instruments for

geothermal policy in Ukraine and focuses on three main topics:

I. GLOBAL GEOTHERMAL EXPERIENCE

Overall there is increasing knowledge regarding general strategy for geothermal development but the

implementation must be adapted to the natural and social environment in each location and country.

The World Bank has, for example, issued a thorough geothermal handbook on planning and financing

power generation projects. The main objective of that handbook is to provide decision makers and

project developers with practical advice on how to set up, design, and implement a geothermal

development program. Geothermal projects are risky and capital intensive, and the key elements of

geothermal development are: (ESMAP, 2012)

availability of sufficiently accurate geothermal resource data, effective and dedicated institutions, supportive policies and regulations and access to suitable financing for the project developer.

On a global level, diverse types of renewable and geothermal policy tools, implementations and

incentives have been used, individually or in parallel, and the policies have also changed over time, both

in developed and developing countries. In most countries geothermal development has taken a long

time. The methodology is well known but must be adapted to circumstances in each country. Generally,

initial projects must be publicly or donor-supported to prove their viability and reduce the risk to a level

that attracts new investors.

Countries considering development of geothermal resources can learn from the experience of other

countries, which have been applying this methodology in their development strategy for decades. This

report uses examples from global and Icelandic geothermal lessons learned for the development of

geothermal projects. The first attempts of direct use of geothermal heat in Iceland for district heating,

date some 80 years back, but generation of electricity with geothermal steam has been escalating over

the last 40 years.

II. GEOTHERMAL RESOURCES AND OPPORTUNITIES IN UKRAINE

In chapter II the focus is on reliable geothermal information, district heating, economics of the district

heating systems etc. The first estimation of geothermal resources in Ukraine was implemented in 1979

by the Central Thematic Expedition of the Geology Ministry. Total projected resources of thermal waters

in Ukraine are 27,3 million m3/day, of which 23 thousand m3/day are from free flowing wells, 137

thousand m3/day can be extracted using pumps, and 27,2 million m3/day can be extracted with back

pressure. However, although there is great geothermal potential in Ukraine, it is a challenge to get a

clear and focused overview, with clear priorities regarding investments and utilization. Therefore,

additional information and work is needed before investment policy regarding priority places can be

highlighted.

III. GEOTHERMAL DEVELOPMENT AND EXPERIENCE IN ICELAND

In chapter III there is a focus on practicality and examples from Iceland regarding utilisation of

geothermal district heating, as such information can be used in similar situations in Ukraine. However,

development of district heating in Iceland has occurred based on several factors, both external and

internal such as; geothermal resources, financial support, and awareness of key stakeholders and policy

priority at the national and regional level.

8

Executive Summary

Key elements in the development of geothermal projects in Ukraine depend on international cooperation

with experienced geothermal countries, international financial institutions and authorities and institutions

in Ukraine. It is also important to base geothermal strategy proposals on challenges and opportunities

in Ukraine, with focus on policy priorities and projects in each location, from further pre-feasibility studies

and evaluations, towards development and implementation of geothermal district heating projects.

Policy Recommendation

General recommendations for Ukraine can be highlighted in the following key policy recommendations:

1. An independent policy based on assessment and conditions in Ukraine.

2. Awareness raising among policymakers, stakeholders and municipalities.

3. Support schemes for the geothermal development.

4. A properly structured policy system, is critical for success for each location.

a. Priority 1 - Education capacity building, networking and awareness raising.

b. Priority 2 - Evaluation of geothermal resources and district heating opportunities.

c. Priority 3 - Promotion of geothermal district heating and power generation.

d. Priority 4 - Development of framework conditions.

e. Priority 5 - International cooperation based on geothermal and financial expertise.

Implementation

I. Step One - Pre-Feasibility Study

The main purpose of this project is to promote early stage development, strategy planning, capacity

building, networking and awareness of geothermal utilisation, to increase the possibility of utilisation of

geothermal resources, energy security, savings and quality of life in the concerning location.

Figure 1. Boreholes that are appropriate for

geothermal power generation and Geothermal

district heating

Figure 2. Some prospective geothermal

energy resources in Ukraine

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Location

Proposal of locations are based on three main priorities:

1) Potential geothermal resources.

2) Population/volume – as it is a base for the economic success of projects. 3) Cities in cooperation

with EBRD/IFIs - as existing involvement of IFIs in concerning places are

important for the implementation and development of geothermal projects.

It is recommended to focus on – three locations out of six, as an option for step one for further exploration

and assessment of geothermal resources in West - Ukraine. These locations are:

L’viv,

Ivano Frankivsk,

Chernivtsi.

Project Coordination

It is recommended that the project coordination will be based on cooperation between National Energy

Authority in Iceland, International Finance Institutions (IFIs) (EBRD or other) and authorities and

institutions in Ukraine.

Finance

The cost of such a pre-feasibility project, should be based on international donor grant contribution. It

is estimated that the cost of each such project could be up to €500.000 per location/project.

II. Step Two - Project Implementation After the conclusion of pre-feasibility studies in step 1, options and opportunities regarding possible

investment projects that can be implemented in concerning locations will be clear.

III. Additional Framework Recommendations

Following recommendations are highlighted for Ukraine:

1. Simplify the administrative procedures to create market conditions to facilitate development.

2. Develop innovative financial models for geothermal district heating, including a risk insurance scheme, and the intensive use of structural funds.

3. Establish a level playing field, by liberalizing the gas price and taxing greenhouse gas emissions in the heat sector appropriately.

4. Train technicians and decision makers from regional and local authorities in order to provide the

technical background necessary to approve and support projects.

5. Increase the awareness of regional and local decision-makers on geothermal potential and its

advantages.

6. Modernize the district heating system.

7. Improve the role of independent regulators.

8. Improve the role of district heating companies.

9. Additional elements of public authorities.

10. Harmonization with EU Law.

11. What can international financing institutions do to help?

IV. Geothermal Options, Opportunities and Benefits Geothermal heat generation has several advantages, such as:

1. Economic opportunity and savings.

2. Improvement of energy security.

3. Reducing greenhouse gas emissions.

4. Harnessing local resources.

5. Reducing dependency on fossil fuels for energy use.

6. Improving industrial and economic activity.

7. Develop low carbon and geothermal technology industry, and create employment opportunities.

8. Local payback in exchange for local support for geothermal drilling.

9. Improving quality of life – based on economic and environmental / climate benefits.

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Conclusion and Recommendations

There is no simple formula for success for any country in terms of geothermal or industrial development.

However, through experience both failures and success lessons can be learned and used as valuable

guidelines for sound geothermal policies and implementations that take note of energy security,

economic savings, economic growth and quality of life. This report focuses on three main subjects:

i. Global Geothermal Experience ii. Geothermal Resources and Opportunities in Ukraine iii. Geothermal Development in Iceland

The geothermal resources in Ukraine are measured against a set of criteria for using geothermal as a

competitive resource and to highlight the main challenges and opportunities for deploying geothermal.

The results can be used in combination with lessons learned from global and Icelandic experiences.

The key conclusions and recommendations are as follows:

I. Global Geothermal Experience

The main lessons learned at the global level are:

1. Policy for geothermal development must be based on assessment of conditions in each region

and country.

2. A properly structured policy system is critical for success.

3. Volume is not the same as efficiency.

4. Policy tools should be well coordinated and harmonised.

5. Policy and regulatory design are dynamic processes.

6. Key factors for competitive geothermal policies and renewables must be identified.

7. Support schemes for geothermal development are important and valuable.

II. Utilisation of Geothermal Resources in Ukraine

The geothermal resources in Ukraine should be examined in the light of following criteria:

1. An independent policy based on assessment and conditions for each location.


3. Support schemes for geothermal development.

4. A properly structured policy system is critical for success:

a. Priority 1 - Education capacity building, networking and awareness raising.

b. Priority 2 - Evaluation of geothermal resources and district heating opportunities.

c. Priority 3 - Promotion of geothermal district heating & power generation.


e. Priority 5 - International cooperation based on geothermal and financial expertise.

Further clarification will follow in this chapter.

III. Geothermal Development and Experience in Iceland

The following elements of policy priority have been shown to be important regarding geothermal

development:


2. Education and capacity building.

3. Evaluation of geothermal resources.

4. Promotion of geothermal power generation and district heating projects.

5. Development of legal and regulatory framework.

6. Financial support for early stage development and exploration.

7. International cooperation, geothermal and financial expertise.

The economic savings from geothermal district heating in Iceland from 1914 – 2014 is equal to 2.680

billion ISK. (19 billion €), or 33 million ISK (240.000 €) per family (four persons). Furthermore, the CO2

savings by using geothermal district heating instead of oil are approx. 100 million tons since 1944, which

is equal to CO2 bindings in 240.000 km2 of forest. The savings of CO2 in 2014 was 3 million tons, which

is equal to CO2 bindings in 7.000 km2 of forest. Geothermal district heating has therefore been an

important contribution to fighting climate change, which is increasing temperatures and sea levels

around the world.

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IV. Opportunities and Policy Options for Ukraine

Key elements in the development of geothermal energy and financing of renewable energy projects in

Ukraine depend on international cooperation with the most experienced geothermal countries,

stakeholders, international financial institutions and donors. It is also important to base proposals on

global lessons learned, and challenges and opportunities in Ukraine towards tailor made policy priorities,

programs and projects. The general recommendations for Ukraine are as follows:




4. A properly structured policy system, is critical for success.

a. Priority 1 - Education capacity building, networking and awareness.

b. Priority 2 - Evaluation of geothermal resources.



e. Priority 5 - International cooperation, geothermal and financial expertise.

In this report, Icelandic and

international lessons learned

are highlighted in combination

with geothermal challenges and

opportunities in Ukraine. Figure

3 illustrates how additional work

and planning could be

organised in cooperation with

relevant stakeholders.

Iceland has successfully utilised

renewable resources to

improve the standard of living,

by improving energy security

and providing substantial

economic savings, for the

economy and consumers for

more than 80 years. Iceland can

assist others to benefit from that

experience in one way or

another. However, for more

detailed policy recommendation

and implementation for Ukraine,

more consultations and a

planning process is needed in

cooperation with the concerning

countries, and international

bodies (EBRD), to establish

geothermal and financial

resources and expertise.

Proposal - Two Steps, 1. Feasibility Study and 2. Project Implementation

In this report it is proposed that geothermal programs and projects in Ukraine should be based on

cooperation with international donors and cooperation with international financial institutions with solid

experience of implementation of programs and projects in Ukraine. EBRD is one such international

institution, as the bank has a long and varied experience in the implementation of such activity in

Ukraine. Further consultation with EBRD would be appropriate to develop this process further if such an

approach would be decided on by the concerning authorities. Further consultation and cooperation with

EBRD and relevant donor countries should be a priority to evaluate such options and opportunities and

formulate further proposals.

Figure 3. Geothermal Policy Options and Opportunities

for Ukraine

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V. First step – Further Assessment of 2 – 3 Priority Locations in Western Ukraine

The opportunities and utilisation of priority locations are shown in figure 4, where the coordination of the

project is explained step by step and can be treated as a model to promote the early stage development

projects, (see also chapter 4.10).

VI. Proposal – Step 1 - Pre- Feasibility Study of Geothermal District Heating

1. Proposed project

Geothermal resources can be economically successful in comparison with fossil based energy

resources, improve economic savings, reduce greenhouse gas emissions, increase energy security,

and improve air quality and quality of life.

Figure 4. Two Step Strategy for Geothermal District Heating (GeoDH) in Ukraine

Step 1

Pre-Feasibility Study

and assessment of

geothermal resources in

two to three areas in

West - Ukraine

Cities

L’viv,

Ivano Frankivsk

Chernivtsi, Towns

Uzhgorodske Berregivske

Mostiske

Coordination –

International geothermal

expertise & EBRD, IFIs

and authorities and

institutions in Ukraine

Finance – donor grant

finance – EBRD / IFIs –

up to € 500.000 per

location.

Time – 15 months

Step 2

Implementation Project / Investment of Geothermal

District Heating (GeoDH) Projects

Implementation of 1 – 2 projects in W-Ukraine – for Geothermal

district heating and / or power generation.

Coordination – International geothermal expertise in cooperation

with EBRD / IFIs in cooperation with donor countries and

authorities in Ukraine.

Implementation – PPP-co-operation – based on tendering

process.

Finance – depends on type of projects and finance and donor

contribution, development priority etc.

Time – 24 months.

13

2. Location


1) Potential geothermal resources. 2) Population / volume as it is a base for economic success of

projects. 3) Cities in cooperation with EBRD / IFIs as existing involvement of IFIs in concerning places

are important for implementation and development of geothermal projects.

Based on these priorities, three locations out of six are highlighted as an option for step one for further

exploration.

Location

Popu-

lation

Exp.

Utilisation

m3/day

Temp-

erature

°C

Geo. inst.

thermal

pow. MW

Fuel

economy,

t.s.f./year*

Directions of using

* (t. s.f./year = tons of standard fuel per

year)

L’viv, city 730.000 Data

needed

Data

needed

Data

needed

Data

needed

Large district heating system, exploration

of geothermal potential needed in the

area

Ivano Frankivsk 229.000 Data

needed

Data

needed

Data

needed

Data

needed



area

Chernivtsi 263.000 Data

needed

Data

needed

Data

needed

Data

needed



area

Uzhgorod 115.000 65.300 60 120,4 117.707 Heat supply for communal and industrial

facilities Uzhgorod

Mostiske 11.000 7.800 107 27,3 15.783 Heat supply for industrial premises

railway station, depot, residential

buildings of village Mostyske

Berehove 24.500 10.300 58 21,5 21.152 Heat supply of village Berehovo,

balneology

Figure 5. Boreholes that are appropriate for

geothermal power generation and Geothermal

district heating

Figure 6. Some prospective geothermal

energy resources in Ukraine

14

3. Coordination

International Geo expertise in cooperation with EBRD and authorities and institutions in Ukraine.

4. Finance

Donor grant finance in cooperation with EBRD / IFIs up to €500.000 per location.

5. Why is the project needed?

To promote early stage development, strategy planning, capacity building, networking and awareness

of geothermal utilisation, to increase the possibility of utilisation of geothermal resources, energy

security, savings and quality of life in concerning location.

6. What will the project achieve?

Pre-feasibility study of geothermal district heating will achieve:

Re-evaluation and updating of the production potential of the geothermal resource in each

location.

Increased awareness of local authorities, as well as the public, of the potential and benefits of

sustainable geothermal utilization in the city and surrounding communities.

Evaluation of the potential increase of geothermal utilization in the city and area.

7. How will it be achieved and who are the beneficiaries?

(a) The following main project phases are proposed:

Assessment of the current status of utilization in each location, capacity of current wells,

energy produced, utilization for district heating, other direct uses, etc.

Potential assessment with simple reservoir models and predictions for some relevant future

sustainable utilization scenarios with special emphasis on the benefits of reinjection.

Potential improvements to the current utilization, in particular district heating. Involves the

design of surface installations with emphasis on the economic and energy efficiency.

Evaluation of the potential for expansion of the current utilization.

Analysis of geothermal district heating development and international comparisons.

Evaluation of geothermal policy options and opportunities.

Dissemination of results locally and countrywide, to increase awareness of geothermal

utilisation, energy security, savings and quality of life in concerning regions.

(b) The beneficiaries of the program are the municipalities in each location and its inhabitants.

8. Possible timeline of step 1 is 15 months.

VII. Step 2 - Priority 3 – Project / Investment Implementation

The conclusions of pre-feasibility studies in step 1 will list up options and opportunities regarding

possible investment projects that can be implemented in the concerning locations by tendering process

based on a PPP (Private Public Partnership) approach

Implementation of one or two projects in W-Ukraine for geothermal district heating and/or power

generation.

Coordination – International geothermal expertise in cooperation with EBRD / IFIs in cooperation with

donor countries and authorities in Ukraine.

Implementation – PPP-cooperation – based on tendering process.

Finance – Depends on type of projects and finance and donor contribution, development priority etc.

Time – 24 months.

15

VIII. Additional Framework Recommendations

In many countries in Europe, geothermal district heating has potential possibilities to replace a significant

part of imported oil and gas for heating in households and industry. The following recommendations

are highlighted for Ukraine:

1. Simplify the administrative procedures to create market conditions that facilitate development; 2. Establish a level playing field, by liberalizing the gas price and taxing greenhouse gas emissions

in the heat sector appropriately; 3. Increase the awareness of regional and local decision-makers on geothermal potential and its

advantages.

4. Modernize the district heating system: a. Better quality of service. b. Lower cost. c. Improved transparency. d. Following improvements of financial viability of district heating companies. e. Reduce cost of supply. f. Increase revenue. g. Quality service should be affordable.

5. Improve the role of independent regulators.

6. Improve the role of district heating companies.

7. Additional elements of public authorities.

a. Finance energy efficiency programs.

b. Support public awareness campaigns for benefits of metering.

c. Providing incentives for demand-side management.

d. Providing target support to poor customers.

8. Harmonization with EU Law.

9. Train technicians and decision makers from regional and local authorities in order to provide the

technical background necessary to approve and support projects.

10. Develop innovative financial models for geothermal district heating, including a risk insurance scheme, and the intensive use of structural funds;

a. Grants / risk loans to geothermal district heating for exploration and test drilling to lower the risk.

b. Grants to individuals (apartments) for changing to geothermal district heating. c. Grants to district heating companies for transformation to geothermal district heating. d. Loans to district heating companies’ tor transformation to geothermal district heating.

11. What can international financing institutions do to help?

a. Financing / Support district heating transformation towards geothermal district heating

b. Financing and implementing heat metering and consumption based billing.

c. Financing energy efficiency measures along the supply line.

d. Technical assistance to newly established regulators.

e. Technical assistance for the design of targeted social safety nets.

12. Access to International Geothermal Expertise, Markets and Services.

Regarding additional elements, see also chapter 4.7.2, 4.7.3, 4.8, 4.9 and 4.10.

IX. Geothermal Options, Opportunities and Benefits

The geothermal heat generation has several advantages, such as:

1. Economic opportunity and savings. 2. Improvement of energy security. 3. Reducing greenhouse gas emissions. 4. Harnessing local resources. 5. Reducing dependency on fossil fuels for energy use. 6. Improving industrial and economic activity. 7. Develop low carbon and geothermal technology industry, and create employment opportunities. 8. Local payback in exchange for local support for geothermal drilling. 9. Improving quality of life based on economic and environmental / climate benefits.

16

I. Global Geothermal Experience

1. Development of the Geothermal Sector Worldwide

1.1. Overview and Challenges of the Geothermal Sector

International Trends in the Geothermal Sector

Since 1990 the global geothermal power market has continued to grow substantially. Geothermal energy

generated twice the amount of electricity as solar energy did worldwide in 2010 and approximately 12,8

GW of installed geothermal power capacity was online globally in January 2015, spread across 24

countries. In 2015 the global geothermal market was developing about 11,5-12,3 GW of planned

capacity, which was spread across 80 countries.

Growth of the geothermal

market is driven by a number

of factors such as: economic

growth, espe-cially in

developing markets; the

electrification of low-income

and rural comm-unities;

increasing concerns

regarding energy security

and its impact on economic

security, reducing green-

house gas emissions,

harnessing domestic re-

sources and improving

quality of life.

Furthermore, the majority of the growth in the development of global geothermal resources is occurring

in countries with large, untapped, conventional resources. As more countries recognize and understand

the economic value of their geothermal resources, their development and utilization becomes a higher

priority.

In 2014, the international geothermal power capacity grew at a rate of 5%, for the third consecutive, and

GEA forecasts that the global market will reach 14,5 to 17,6 GW by 2020 and this growth will come from

European, East African, and South Pacific markets as these regions lead geothermal growth by

substantial capacity additions in the next five years.

This growth is also supported by the World Bank and other multi-lateral organizations focused on early

risk mitigation. For example, the World Bank’s Energy Sector Management Assistance Program

(ESMAP) has mobilized $235 million through the Clean Technology Fund toward scaling up geothermal

energy, as part of their Global Geothermal Development Plan (GGDP). Projects in Latin America

including Mexico, Chile, Nicaragua, Dominica and St. Lucia and the Caribbean are expected to or

already received funding from this program. ESMAP has identified 36 geothermal fields in 16 countries

where surface exploration has been completed and additional financing is needed in the near future to

confirm the commercial viability of geothermal resources. ESMAP has also estimated that 40 countries

could meet a large proportion of their electricity demand through geothermal power. (Geothermal Energy

Aassociation, Benjamin Matek, 2015).

Due to climate change challenges, many countries are more and more prioritising and utilising

renewable resources, including geothermal, for power and heating. The United Nations expect e.g. that

Latin American countries will be severely affected by climate change, despite the fact that the region’s

greenhouse gas emissions represent a small proportion of total global emissions. The melting of Andean

Figure 1.1.1. Installed Geothermal Electric Capacity

Globally, 1960 – 2012

17

glaciers, changing rain patterns and decreasing water supply will negatively impact local agriculture and

residential patterns in those countries. To respond to these challenges regarding energy security and

its impact on economic security, in addition to increasing demand, many countries have taken steps

towards increasing domestic energy security by supporting the development of their renewable energy

resources, including geothermal resources.

Since 2005, over 160

geothermal power pro-

jects have been built

adding an additional 4

GW to electricity grids

across the globe. Many

countries are expecting

that the threat caused by

climate change will

increase recognition and

the awareness of the

value and opportunities

of geothermal power as

a base load and

sometimes flexible

source of renewable

energy. These projects

and countries are on every continent and range from small island nations to large economies like China

and the United States.

If all countries follow through on their geothermal power development goals and targets the global

market could reach 27-30 GW by the early 2030s, and the World Bank estimates that as many as 40

countries could meet a large proportion of their electricity demand through geothermal power. However,

it is estimated by GEA that communities and governments around the world have only tapped 6,5% of

the total global potential for geothermal power based on current geologic knowledge and technology.

(Geothermal Energy Aassociation, Benjamin Matek, 2015).

Significant growth is expected in the global geothermal power industry over the next five years, due to

construction of power plants in Kenya and Ethiopia with a capacity greater than 100 MW. In comparison

the average size of a geothermal power plant in the United States is about 25 MW.

“Ukraine has already taken important steps towards energy sector reforms, but achieving the full

potential for an energy revolution will require a greater policy focus on developing energy efficiency in

the building and industry sectors and modernising district heating systems,” IEA Executive Director

Maria van der Hoeven said in Kiev at the launch of Ukraine 2012 Energy Policy Review. “The country

must make deep regulatory reforms to foster effective competition, alongside a progressive move

towards market prices to attract investment to develop the sector.” In addition, energy use and demand

is growing in Ukraine and is projected to increase by 72 percent through 2035, according to the EIA. By

utilising geothermal resources, Ukraine is able to use an important and valuable opportunity to meet

needs with a sustainable form of energy, particularly in the western part of the country.

In Ukraine there is a significant geothermal potential especially regarding heating, but the resources are

still in the early stages of exploring and assessment. Experienced international companies in the

renewable sector are also showing interest in developing Ukraine’s renewable resources in cooperation

with domestic stakeholders. These companies are partnering with domestic companies, bringing local

understanding to the project as well as making development more feasible and it is highly likely that

there are several opportunities regarding harnessing geothermal resources in Ukraine.

Figure 1.1.2. Geothermal Power – Announced Planned Capacity

Additions & Targets 2014 (GEA 2015)

18

1.2. Renewable / Geothermal Policy – Options and Instruments

Growing Importance of Geothermal Policy

It is recognised that renewable energy, including geothermal energy, plays an important role in the

transition towards greater energy security and has an impact on economic benefits and safety, reduction

of greenhouse gas emissions, enhancing technology diversification, hedging against fuel price volatility,

strengthening economic growth and employment, promoting rural development and reducing poverty by

access to electricity.

Global trends are also indicating a growing commitment to renewable energy, in developed and

developing countries, both regarding specific policy instruments and flow of investment in that sector.

The growth of renewable energy in developing countries has been outstanding in many cases and linked

to similar growth in related services and manufacturing industries. As an example, Brazil, China and

India were among the top 10 countries in the world 2009 when it comes to investment in sustainable

energy with a combined amount of 44,2 billion USD, or 37% of the total investment in the sector.

(Bloomberg New energy Finance, 2010)

Price Related, Quota and Auctions Policies

Both developed and developing countries have used different types of policy and implementation tools to support renewable energy development and the renewable energy market is in general, a policy-driven market.

Since the 1970s developed countries have been designing and implementing different types of price-

and quota based mechanisms to promote renewable energy development. For example, the United

States implemented its first feed-in tariff policy (FITP) in 1978 and a quota mechanism (RPS) from 1983.

Germany was the first European country to introduce a feed-in tariff (FIT) 1990, and many European

countries have familiarity with either price- or quota-based mechanisms. The United Kingdom,

introduced competitive tenders during the 1990s.

Developing countries also have a history of designing and implementing policy and instruments to

promote renewable policy. India was the first country to introduce some type of special tariff or FIT in

1993, followed by Sri Lanka in 1997, and Brazil and Indonesia in 2002. Quota systems have been less

popular in the developing world, and for example an exact RPS, a quota or target1 has only been

introduced by a few countries, including Chile from 2008, Poland from 2005 and Romania from 2004.

Competitive schemes or auctions in the developing world are less common, but some countries have or

are now testing their effectiveness e.g. Argentina, Brazil, China, Peru, Thailand, and Uruguay. FITPs

are now being implemented in 49 countries around the world and are often stated as the most effective

policy for attracting private investment in the renewable energy / geothermal sector. Many developed

and developing countries, however use quota based systems, including RPSs and auctions e.g. Brazil,

Chile, China, France, Poland, Sweden, the United Kingdom, and the United States. (WB, 2012).

Financial Related Policy

Financial related policy has also been used, including fiscal and financial incentives and a range of other

supplementary measures to stimulate investments in the renewable energy sector. All these measured

have been adopted in parallel to price and quantity setting instruments in both developed and developing

countries. (WB, 2012).

Iceland has used financial incentives to promote geothermal development for about 50 years, and it has

been an important policy instrument to increase investments and facilitate the operation of geothermal

district heating networks with success, without using other price related policy instruments for the sector.

This has been successfully implemented for district heating both in cities and smaller municipalities in

Iceland, in areas with both limited and abundant geothermal resources.

1 A proportional obligation is imposed on utilities or retail companies, and the price is competitively determined by the market.

19

Emission Certificates / Tax Policy

A growing number of policies that indirectly promote renewable energy are known as cap-and-trade

programs. The system uses a ceiling on the emissions of covered entities, issues allowances or

emission certificates, and promotes their trading to generate a market price for emissions. This system

can also be implemented through a tax policy. The cap-and-trade schemes have been implemented in

many developed countries, e.g. the United States as the Regional Greenhouse Gas Initiative and as the

Emissions Trading System (EU ETS) in 28 European Union countries. Some developed countries have

also been applying carbon taxes since the beginning of the 1990s, e.g. the Netherlands and the

Scandinavian countries, and recently the Canadian province of British Columbia. As of 2012, no

developing country has formally implemented a greenhouse gas cap-and-trade scheme or a carbon tax.

(WB, 2012).

Trends in Renewable / Geothermal Policy

In 2012 there were 31

developing countries that

have introduced some type

of price or quantity-setting

instrument to increase the

share of renewable energy

electricity generation, 28

have opted for an FITP, and

only a few have introduced

an RPS or use auctions e.g.

Brazil, Chile, China and

Poland. Some countries

have also made important

policy shifts, and many are

now also using both

price- and quota based

instruments.

The policy structures of

choice in various developed

and developing countries in 2012 can be seen in figure 1.2.1 and 1.2.2. It shows the increasing

acceptance of renewable energy policy tools by some of these countries as well as changes.

Even though, developing countries (middle income) have steadily adopted economic incentives such as

FITPs, recent trends reveal that upper-middle income countries have started to introduce competitive

mechanisms including renewable portfolio standards and auctions. (WB, 2012).

Figure 1.2.1. Use of Renewable Energy Policy Instruments

Figure 1.2.2. Number of Countries with Renewable Energy Policy, by Type, 2011 – 2015

Source: Renewables 2015, Global Status Report

20

ESMAP, has estimated the global growth of the geothermal sector until 2030. It will continue to grow to

cumulated capacity of up to 25 GW, as can been seen in figure 1.2.3. It is estimated by ESMAP that

based on information on currently planned projects and those that are actually under construction, by

the year 2020 worldwide geothermal power capacity (from geothermal resources only) is expected to

grow to 18 GW.

It is also stated in the report that countries in” Latin America like, Mexico, Costa Rica, Nicaragua, and

El Salvador are likely to continue developing new geothermal power projects with a total added capacity

of 500 to 1.500 MW by 2020. Other countries (e.g., Peru, Chile, and Argentina) might start developing

their first projects before 2020. Guatemala, Honduras, Panama, Colombia, Ecuador, Bolivia, and several

Caribbean island states, including Cuba and Haiti and Dominica, also offer good prospects.

Looking to 2050, significant additions

in installed capacity can also be

expected in the following countries

and regions:

• Pacific Asia: Malaysia and Papua

New Guinea.

• Africa: Tanzania, Eritrea, Sudan,

Somalia, Malawi, Zambia, Burundi,

Rwanda, Uganda, Democratic

Republic of Congo, Mozambique,

Madagascar, Comoros and Mauritius,

and several North African countries.

• Latin America: Guatemala,

Honduras, Panama, Colombia,

Ecuador, Bolivia, and several

Caribbean island states, including

Cuba and Haiti”. (ESMAP, 2012).

0

5,000

10,000

15,000

20,000

25,000

30,000

1990 2000 2010 2020 2030

Source: ESMAP, 002/2012

Estimated

Figure 1.2.3. Estimated Global Geothermal Capacity

1990 – 2030

Table 1.2.1. Trend in Global Renewable / Geothermal Policy

21

1.3. Support for Renewable Energy in the European Union

1.3.1. Operational Support

Support for geothermal electricity has been given in various forms of public policy mechanisms.

Generally, the support can be in the form of 1) investment support (capital grants, tax exemptions or

deductions on the purchase of goods)

and/or 2) operating support (price

subsidies, renewable energy

obligations with green certificates,

tender schemes and tax reductions on

the production of electricity). (EGEC,

2013).

For over 10 years a few EU member

states have driven the development of

renewable energy and invested in

research and development, building

demonstration plants, and finally in

supporting deployment of renewable

energy equipment. Some of these EU

countries, (e.g. Germany, Denmark

and Spain) now have major renewable energy companies, operating globally. The growth of these

companies was in part based on support for renewable energy, paid by domestic energy consumers

paying slightly higher energy bills to cover the extra cost of developing the renewable energy. The policy

of the EU is that this kind of growth and commitment must occur across all member states, if they are

to reach their targets. (Commission, 2011).

The policy on supporting renewable

energy can be found in the report

Review of European and National

Financing of Renewable energy where it

is stated: “The Commission finds that the

short term costs of investing in electricity

grid infrastructure are far outweighed by

the benefits of creating an integrated

European electricity market capable of

sustaining a future de-carbonized

electricity sector. The urgency of the

need for action has been highlighted

most recently in the IEA’s 2010 World

Energy Outlook.

Whilst energy infrastructure has

traditionally been funded by the private

sector or national governments, European intervention and funding for infrastructure projects of

European importance can help create a more efficient energy network and create significant cost

savings for Europe. Similarly, European intervention to promote efficiency in the achievement of the

renewable energy targets could save billions of Euros“. (Commission, 2011).

0

5

10

15

20

25

30

35

Feed-in Tariff Min Feed-in Tariff Max

Source: EGEC, 2013

(€ct/kWH)

Figure 1.3.1.1. Feed-in Tariff System in EU Countries

0

2

4

6

8

10

12

14

Estonia Netherlands Slovenia Italy

Feed-in Tariff Min Feed-in Tariff Max

Source: EGEC, 2013

(€ct/kWh)

Figure 1.3.1.2. Feed-in Tariff Premium System in EU Countries

22

1.3.2. Financial Support

Regarding financial support to geothermal

heating, investment requires capital

expenditure to generate production and

revenues to cover costs.

Geothermal heating has in general low

operating costs but high capital costs as

the structure is capital intensive. The

financing structure therefore has to take

this into account.

To increase the development and use of

geothermal heating and meet the

investment gap, efforts can be directed

through direct or indirect support, to

lowering the cost of capital by reducing technology, plant and construction costs, or

by raising more revenues through support measures, to cover costs.

Reducing capital costs Reducing capital costs through revenues

Grants: taxpayer funded aid, often for innovative demonstration projects.

R&D grants: grants, often for research into innovative,

immature technologies.

Public loans: offer cheaper access to capital due to public funds used to bear greater risk. Particularly useful for small and medium sized enterprise (SME) with less access to capital. Equity funds: private medium risk investors, expecting relatively higher returns, for later stage of projects and more mature technologies, and investment periods of 3-5 years. Venture capital: private equity investment for financing technology innovation, with active involvement of the fund managers in the project. Mezzanine funds: loans that take more risk than normal (“senior”) debt but less risk than equity; expecting relatively short term and variable but higher return. Guarantees: offer of compensating payment to a lender or an investor in case of payment default by a project developer. Contingent grants or loans: support that is converted into a loan when a project turns out to be successful, or treated as a grant if the project encounters financial difficulties.

(starting point: energy prices covering costs) Regulated prices: feed-in tariffs, (FIT) giving energy producers a fixed financial payment per unit of electricity or heat produced from renewable energy sources. Often fixed for 10-20 years, differentiated by technology and phased out. Regulated premiums: feed-in premiums, (FIP) giving energy producers a fixed financial payment per unit of electricity or heat produced from renewable energy sources for the green value; the producer receiving the market price for the physical energy. Quota/certificates: impose a minimum share or quota of renewables in the electricity, transport fuel or heating fuel mix, which can be met either through physical production (common for biofuels) or through purchasing “green certificates”, virtual, rather than physical energy. The producer of the green energy is paid for the green certificates by the supplier or other facing the obligation. Fiscal incentives: tax exemptions or tax credits for investments in renewable energy projects. Tenders: A government call for tender for a renewable energy project, often specifying the capacity/ production/ technology/ site. The winner is generally granted a long term power purchasing agreement at a competitive price.

Table 1.3.2.1. Financial Support to Geothermal Heating in EU countries

Investment Grants France (Fonds chaleur renouvelable) for collective office buildings Germany, Hungary, Greece, Poland, Romania, Slovakia and Slovenia, Spain.

Feed-in tariff Italy (Conto termico), Netherlands (SDE+) and UK (Renewable heat incentive).

Tax rebate/VAT reduction France: (VAT reduction for district heating, rebate on tax on revenues for individual housings), Hungary, Italy, Netherlands

Low or zero interest loans France: (for individual housings), Germany, Hungary, Netherlands, Poland, Slovenia and Spain.

CO2 tax Finland, Sweden and Denmark. Sources: (EGEC, 2013)

Table 1.3.2.2. Types of Financial Support to Geothermal Heating in EU Countries

23

The choice of support measures to

help reduce renewable energy

costs depends on the technology and

project development, and different

forms of project risk, technology,

construction, regulatory and in

particular on the maturity of a project

or technology. When technology and

projects are capable of being

deployed but are not yet competitive,

support tends to shift from capital

support to operating support, but

there is a range of tools, depending

on circumstances.

Looking at national support schemes

in Europe, it is interesting how EU

member states use a range of

different instruments. The use of

multiple instruments can be

appropriate, given the different

economic status of different

technologies, in terms of maturity.

(Commission, 2011). When looking

at the share of renewables in total

primary energy use, it can be seen

that Iceland has the highest share,

with 85%, and the average for Europe

is 9%, USA 8%, Japan 3% and China

14%. The high share of renewables in

total primary energy used in Iceland,

is not only due to great potential of

renewable resources, but also

because of long term priority and sustainable policy towards harnessing these renewable resources,

through hydro and geothermal programs and projects generating electricity and geothermal district

heating. This policy has created savings for businesses and homes, increased energy security and

reduced greenhouse gas emissions. It has also created economic opportunities and savings and

improved quality of life.

Figure 1.3.2.1. The main RES-E Support Scheme in Europe

Austr

ia

Belg

ium

Bulg

aria

Cypru

s

Czech R

ep.

Germ

any

Denm

ark

Esto

nia

Spain

Fin

land

Fra

nce

Gre

ece

Hungary

Irela

nd

Italy

Lith

uania

Luxem

bourg

Latv

ia

Malta

Neth

erlands

Pola

nd

Port

ugal

Rom

ania

Sw

eden

Slo

venia

Slo

vakia

Unite

d K

ingdom

Sources: AT BE BG CY CZ DE DK EE ES FI FR GR HU IE IT LT LU LV M T NL PL PT RO SE SI SK UK

FIT x x x x x x x x x x x x x x x x x x x x x

Premium x x x x x x

Quota obligation x x x x x x

Investm. grants x x x x x x x x x x

Tax exemtions x x x x x x x x x x

Fiscal incentives x x x x x x x

Investm. grants x x x x x x x x x x x x x x x x x x x x x x

Tax exemtions x x x x x x x x x x

Fiscal incentives x x x x x

Premium x

Quota obligation x x x x x x x x x x x x x x x x x x x x

Tax exemtions x x x x x x x x x x x x x x x x x x x x x x x x Sources: SEC (2011) 131: Review of European and national financing of renewable energy in accordance with Article 23 (7) of Directive 2009/28/EC

Electricity

Heating

Transport

EU Member States' use of different instruments for electricity, heating and transport (biofuels).

NATIONAL SUPPORT FOR RENEWABLE ENERGY

Figure 1.3.2.2. Share of Renewables in Total Primary

Energy use

Table 1.3.2.3.

24

1.4. Global Renewable and Geothermal Policy – Lessons Learned

On a global level, diverse types of renewable and geothermal policy tools, implementations and

incentives have been used, individually or in parallel, and policies have changed over time both in

developed and developing countries. (WB, 2012).

1. An independent policy based on assessment and conditions in each country is important.

When designing and choosing policy, administration, regulation and implementation tools, it is important

to design this policy based on overall assessments and evaluation of actual conditions, challenges and

possibilities in each area e.g. type of market, supply, demand, volume, risks, organisational and

administrative capabilities, etc.

2. Policy system in right structure is critical for policy success.

Policy success depends on the existence of basic legal and regulatory conditions, as well as

organisational and administrative efficiency. Legal framework for grid connection, resources, land use

and distribution of licences and rights must be prepared and implemented, so granting permits and

implementation of projects will not be stuck in bottlenecks.

3. Volume is not the same as efficiency.

Volume based renewable energy policy may not necessarily be efficient. Even if the policy combination

succeeds in prompting investments that achieve capacity targets, the economic efficiency (cost per unit

of benefits) may be low.

4. Importance of coordination and harmony of policy tools.

The coordination of policy instruments has the potential to create complex interactions and unforeseen

effects. Policy makers have to consider the possibility among policy and regulatory tools that the

combined impact may result in various and inefficient outcomes. It is important that individual policies

are coordinated with the wider set of framework conditions that impact the energy market.

5. Policy and regulatory design is a dynamic process.

Over the year’s countries have tried different types of policy tools to support renewable policy and many

are now using both price and quantity setting mechanisms. Feed-in tariff policies (FITPs) have required

successive adjustments and attracting private investment while at the same time reducing minimal

payments. Policy changes should however be organised through systems that allow participants to

manage the risks in order to maintain a certain level of regulatory stability and security.

6. Competitive renewable and geothermal policy depends on a number of key factors.

Well-designed policy does not always create a competitive and successful renewable or geothermal

sector if various critical factors are not carefully included in the system, e.g. integration of renewable

energy into the transmission infrastructure and rules on transmission access and connection.

7. Support schemes are important and valuable

Support schemes are crucial tools of public policy for geothermal to compensate for market failures and

to allow the technology to progress along its learning curve. By definition, they are temporary and shall

be phased out as this technology reaches full competitiveness;

25

2. Development, Competitiveness and Risks of Geothermal

Projects

2.1. Risk and Financing of Geothermal Projects

It is generally recognized that

geothermal exploration and

development is a high-risk investment,

due to uncertainty associated with a

natural resource that cannot readily be

observed or characterized without

relatively large expenditures for

drilling.

The long development time typically

required to move a project from

preliminary exploration through

development to construction is an

additional risk factor and many large

geothermal projects (50 MWe) have

taken 10 years or more to develop.

This is a long development and

construction time for investment, with

the added risk in the early phases of

the project. From figure 2.1.1 it can be

seen that the risk profile is greatest

during the preliminary surveying and

exploration phases, but in that part of

the project the cost is comparatively

low.

The test drilling phase requires a

greater level of expenditure, although

there is still a high level of uncertainty

and risk involved and this step is

frequently the biggest barrier for

further development of the project.

Therefore, numerous international

aid agencies and governments

around the world have recognized

this as a barrier to the development of

geothermal projects. Risk mitigation

funds (private and public) have been

established in some countries to

assist projects through this

exploration phase. In addition, more capital has also been spent on R&D in geothermal projects in recent

years. Generally, funding is only committed to the test drilling part of project development if the investor

believes there is an adequate financial return on investment ROI (in terms of a percentage of the

committed capital per annum). In addition, risk mitigation funds (grant scheme) improve the predicted

ROI by reducing the amount of capital invested by the investor. Usually, maximum ROI is only achieved

if wells produce at or above their predicted outputs, and this result relies on high quality exploration

methods and interpretation. Several mechanisms for supporting investments in geothermal energy exist

around the world and at a national level. These financial mechanisms (public and private) can address

different project stages and can come from different sources. In Iceland, public grants at early stages

have helped many projects.

Figure. 2.1.2. Geothermal Project Plan and

Options of Financing

Figure 2.1.1. Risk, Bankability and Cost of

a Geothermal Project

Milestones

1 2 3 4 5 6 7 Liftime

1 Preliminary Survey

2 Exploration

3 Test Drillings

4 Project Review & Planning

5 Field Development

6 Construction

7 Start-up & Commissioning

8 Operation & Maintenance

Options of financing

Private Funding

Seed Private Mezz- Bridge Construction Project financing

capital equity anine dept financing Tax equity

+ Venture dept

capital

Public funding

Grants Risk insurances FIT or FIP

R&D Public exploration

Sources: ESMAP 2012, EGEC 2013, Enery Authority, amended 2014

Geothermal Project Plan for Unit of 50 MW

Years of Implementation

26

2.2. Competitiveness of Geothermal Technology – Comparison

When comparing total cost of electricity, levelised cost of electricity (LCOE) is often used as a classical

summary of the overall competiveness of different generating technologies. It shows the per-kilowatt-

hour cost (in real dollars) of building, maintaining and operating a generating plant over an assumed

financial lifetime. Key

elements of LCOE include

capital cost, fuel cost, fixed

and variable operations and

maintenance (O&M) cost and

an assumed utilization rate for

each plant type.

However, cost factors vary

between technologies, as cost

structures are different (e.g.

wind and solar have no fuel

cost, etc.), and across regions,

depending on overall frame-

work conditions. This cost can

also vary through time as

technology changes. Addi-

tional items like, projected

utilisation rate, resource mix

and capacity value, have also

an impact on decision making

in each region.

In figure 2.2.1 the LCOE values and capacity factors, are shown as average numbers for each utility-

scale generation technology in the USA and are calculated based on a 30-year cost recovery period,

using a real after tax weighted average cost of capital (WACC) of 6,5%. However, in reality, the cost

recovery period and cost of capital can vary by technology and project type. As the numbers are U.S.

national average numbers for the electric generation, the numbers can be different between states and

regions.

According to figure 2.2.1 the geothermal sector is the most competitive one, in comparison to other

sectors as the levelised cost is only 48 $/MWh and next is natural gas-fired conventional combined cycle

with 66 $/MWh, or 38% higher. Wind is estimated as 80 $/MWh or 67% higher, hydro is estimated on

85 $/MWh or 77% higher and other options beyond. (NEMS, US National Energy Modelling System,

2014).

From the U.S. comparison of LCOE, the competitiveness and low cost of geothermal generated

electricity is further outlined, which is an important and valuable message and opportunity for energy

policy formulation and policy makers, in various regions and countries, including the Ukraine.

0

10

20

30

40

50

60

70

80

90

100

0

50

100

150

200

250

300

Levelised Capital CostFixed O&MVariable O&MTransmission InvestmentCapacity Factor

48

66 80 8596 96 103

128 130

204

243

Capacity factor %Levelised cost $ / MWh 2012

Sources: EIA, U.S. Energy Information Administration, 2014.National Energy Authority Iceland, 2014

Figure 2.2.1. U.S. Average Levelised Cost of Electricity and Capacity Factor for Plants, entering services in 2019

27

2.3. Cost and Structure of Geothermal Projects

Geothermal Electricity

In Europe it is estimated that the capital costs for geothermal generation per MWe range between 3 and

12 million euros and it can vary depending on environment and technology. The capital costs are also

dependent on drilling, e.g. the number of wells required, the depth of drilling and the geological risk.

Geothermal electricity is competitive with newly built conventional power plants in Europe, where high-

temperature hydrothermal resources are available. However, there are barriers for both geothermal

electricity and heating sectors, sometimes in the form of unfair competition with gas, coal, nuclear and

oil, in the form of prices, taxes or support, which is the reason for support schemes for geothermal.

Figure 2.3.3. Recent US Geothermal Cost Trends

Installed Cost per MW for US Utility-Scale Geothermal Projects (2009-2012)

Figure 2.3.3. shows cost per MW ($/MW) of recent U.S. geothermal installations with each project’s

overall capacity, based on publicly available data from the U.S. Treasury’s, grant database as of

February 19, 2013, based on approved total “cost basis” under the Internal Revenue Code (IRC). As

this is the cost base, some other elements are excluded such as transmission line upgrades, but this is

the only publicly available data that can be compared across projects. As can be seen, there is a similar

cost structure per MW for some of the projects but different for others, due to different external factors

e.g. geothermal resources, and different for greenfield and expansion2 project, etc. (Energy, 2014)

2 Greenfield project = new project. Expansion Project = extension of existing project.

7

6

4

3

12

0

2

4

6

8

10

12

14

EGS Binary-ORC Flash steam Dry steam

Lowest

Highest

€ million / MWe

Source: EGEC 2013

Figure 2.3.1. Capital Cost of Geothermal Electricity

€ million / MWe installed

0.2

0.1

0.05

0.3

0.15

0.09

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Enhanced Geot.System.

Low temp. andsmall high T

plants

Electricity -Conventional -

high T

Lowest

Highest

€ / kWh

Source: EGEC, 2013

Figure 2.3.2. Levelised Cost of Geothermal Electricity

€ / kWh 2012

28

The levelised costs of geothermal power plants vary greatly. New plant costs in some countries are

highly competitive (e.g. 50 €/MWh for high-temperature resources). This cost is largely depending on

the main cost components such as drilling which can be 30% of total cost for high-temperature plants,

and 50% for low temperature and even 70% for EGS. However, the high capacity factor for geothermal

(>90%, the highest of all energy technologies including nuclear) mitigates the capital intensity to make

geothermal technologies competitive.

On average in Europe, the

capital cost for geothermal

power generation range

between 4 and 7 million euros

per MWe, but is also

dependent upon the specific

site such as number and depth

of geothermal wells and

technology. Deployment of

geothermal energy will require

contribution and cooperation of

private and public funding, but

the engagement of the private

sector is crucial.

Nevertheless, there are

financial barriers to develop

geothermal power projects in many places of the world, which need to be overcome through public

support at the beginning of geothermal development.

2.4. Geothermal District Heating

2.4.1. Cost Structure of Geothermal District Heating

Geothermal District Heating

In most cases, geothermal district heating projects face the same issues as geothermal power plants.

Furthermore, geothermal heat pumps can also be considered as a capital intensive technology in

comparison with other small scale applications. (EGEC, 2013).

1.5

0.5 0.5

1.8

1.5

1

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Geothermal DH Geothermal directuses

Geoth. sourceheat pump

(GSHP)

Lowest

Highest

€ million / MWth

Source: EGEC, 2013

Figure 2.4.1.1. Capital Cost of Geothermal Heating

€ million/MWth installed

0

20

40

60

80

100

120

140

Site scoutingand

geophysicalexploration

Exploratorydrilling

Drilling Fielddevelopment

Power plantconstruction

TOTALEXPENSES

Source: EGEC 2013,

€ million

Figure 2.3.4. Cost structure of a 20 MWe Conventional High Temperature Plant

- upfront cost forexploration

- exposure to riskof failure

80 - 12030 - 60

50 - 6030

20 - 30

1 - 2

0.02

0.040.05

0.06 0.05

0.08

0.2

0.1

0.3

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Geothermal DH Geothermaldirecht use

GeothermalGSHP

Lowest

Average

Highest

€ / kWh

Source: EGEC, 2013

Figure 2.4.1.2. Levelised Cost of Geothermal Heating

€/kWh 2012

29

Geothermal heat is also important and competitive for district heating, where a resource is available,

especially where a district heating system is already in place. Geothermal heat can also be competitive

for industrial and agriculture applications. Geothermal heat pumps can also be profitable, in comparison

with fossil fuel heating systems.

Geothermal heat may be competitive for district heating where a resource with sufficiently high

temperatures is available and an adaptable district heating system is in place. Geothermal heat may

also be competitive for industrial and agriculture applications (greenhouses). As geothermal heat pumps

can be considered a mature and competitive technology, a level playing field with the fossil fuel heating

systems will allow phasing out any subsidies for shallow geothermal in the heating sector.

In many cases, geothermal district heating projects face the same issues as geothermal power plants,

the need of capital and risk mitigation is therefore also valid for this technology. Moreover, notably

because of the drilling, geothermal heat pumps can also be considered as a capital intensive technology

in comparison with other small scale applications. Geothermal heating and cooling technologies are

considered competitive in terms of costs, apart from the notable exception of EGS for heating.

In addition, an important barrier for both electricity and heating and cooling sectors is the unfair

competition with gas, coal, nuclear and oil, which is the primary reason justifying the establishment of

financial support schemes for geothermal.

If we look at the proportion of annual's salaries of people for buying district heating and electricity for

100m2 household in Europe, we can see that Iceland is paying the lowest proportion for both district

heating and electricity, and Romania is paying the highest.

1,4%

1,7%

2,1%

2,4%

3,2%

2,3%

2,4%

3,5%

4,6%

5,1%

7,0%

7,1%

7,5%

7,7%

7,7%

11,0%

11,4%

14,1%

0.0% 1.5% 3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0% 13.5% 15.0%

Iceland

Norway

Sweden

Finland

Denmark

Austria

France

Germany

Slovenia

Hungary

Poland

Estonia

Bulgaria

Slovakia

Czech Republic

Lithuania

Latvia

Romania

District Heating Electricity

Fig. 2.4.1.3 The Proportion of Annual's Salaries of people for buying District Heating and Electricity for 100m2 Household in Europe

Source: Orkustofnun Data Repository: OS-2016-T006-01

30

2.4.2. Policy towards Geothermal District Heating in Europe

AEBIOM, EGEC and ESTIF, organizations representing the biomass, geothermal and solar thermal

sectors respectively, addressed an open letter to the EU Heads of State and Government, 19th of March

2014. The letter states that "...Investing in renewables for heating and cooling will bring security of supply

and more competitiveness, and could save EUR 11,5 billion per year, announces the industry. Over

recent years, the lack of awareness and political support to renewables for heating and cooling has

meant only modest market development in the sector. However, in view of the upcoming discussion of

the European Council on EU climate and energy policies beyond 2020, there is a great opportunity to

invert this trend.” Dr. Guðni A. Jóhannesson Director General of the National Energy Authority of Iceland,

also stated in the ERA NET Newsletter in May 2014 that, “It is important for policymakers and others to

recognize the great opportunity regarding geothermal heating for savings for countries, as it is estimated

that geothermal heating in Iceland is saving equal to 7% of GDP or 3000 US$ per capita or close to 1

billion US$ for the economy only for 2012.

Untapped geothermal resources could significantly contribute to the decarbonisation.

According to Heat Road Map Europe 2050, untapped geothermal resources in Europe could significantly

contribute to the decarburization of the district heating market as it has been estimated that geothermal

district heating would be available to 25% of the EU-27 population. It has been estimated that 12% of

the communal heat demand is from district heating and heat supply to district heating systems is 17%

from power plants, 7% from waste, 3% from industrial heat, 1% from biomass and only 0,001% is coming

from geothermal resources. According to Eurostat, about one third of the EU’s total crude oil (34,5%)

and natural gas (31,5%) in 2010 was imported and, 75% of that gas was used for heating (2/3 in

households and 1/3 in the industry). Geothermal district heating therefore has potential possibilities to

replace a significant part of imported oil and gas for heating households and industry. GeoDH

consortium has proposed policy priorities towards such development which are: (GeoDH, 2014).

1. Simplify the administrative procedures to create market conditions, to facilitate development; 2. Develop innovative financial models for geothermal district heating, including a risk

insurance scheme, and the intensive use of structural funds.

3. Establish a level playing field, by liberalizing the gas price and taxing green-house gas

emissions in the heat sector appropriately.

4. Train technicians and decision-makers from regional and local authorities in order to

provide the technical background necessary to approve and support projects.

5. Increase the awareness of regional and local decision-makers on deep geothermal potential

and its advantages.

It is likely that all these elements could be similar in Ukraine, e.g. the possibility to use more geothermal

resources in existing district heating systems, instead of oil, coal or gas, that would increase energy

security, economic benefits and reducing CO2.This general policy recommendation is also important.

Figure 2.4.2.1. Geothermal Cities with

District Heating Systems

Figure 2.4.2.2. Geothermal Heat at 2000

meters

Source: Heat Roadmap Europe 2050 Source: Heat Roadmap Europe 2050

31

Market Trends Towards Geothermal District Heating in Europe

According to GeoDH there are

around 250 geothermal district

heating plants (including

cogeneration systems) in

Europe, total installed capacity

is about 4,5 GWth and plants in

operation in 2012-13 produced

around 13 TWh/y for heating.

Within the European Union

there are 162 geothermal

district heating plants, with a

total installed capacity around

1,3 GWth, producing some 4,3

TWh of heat, i.e. 366 ktoe in

2012. According to EGEC, the

capacity will grow from 4,5 GWth installed in 2014 to at least 6,5 GWth in 2018. According to GeoDH,

the main regions using deep geothermal wells include the Paris basin (France), Tuscany and Emilia-

Romagna (Italy), Bavaria (Germany), the Pannonian basin (Hungary, Serbia, Romania, Slovakia,

Slovenia and Croatia) and the

doublet wells of Thisted in

Denmark, which have been in

operation for 30 years.

(GeoDH, 2015).

In Europe there are over 5.000

district heating systems,

representing about 12-15% of

the European heat market,

mainly located in Scandinavia,

central and eastern Europe.

These district heating systems

are mostly use fossil fuels and, to

a lesser extent, waste, e.g. 80%

of district heating systems in Germany are supplied by conventional combined heat and power (CHP),

76% by coal in Poland, 76% and 43% by natural gas in Italy and France respectively.

However, district heating is considered as a key technology to decarbonise the heat sector and reduce

Europe’s dependency on fossil fuels using renewable sources, including geothermal. The trend to adopt

geothermal is clear, even in regions which may be recognised as being less favourable to operation.

The potential of geothermal for district heating is significant; however, the awareness of geothermal

district heating technology is poor at present in many cases. There are several Eastern and Central

European countries, such as Hungary, Poland, Slovakia, Slovenia, the Czech Republic, Romania, and

Ukraine with geothermal district heating systems installed.

However, the potential is much larger. In other Eastern and Central European countries, including

Bulgaria, the Czech Republic, Slovenia and Ukraine, there is both the need to convince decision makers

and to adopt the right regulatory framework, but also to establish the market conditions for a

development of thegeothermal district heating market. Several Western European countries have 2020

targets for geothermal district heating, of which Germany, France and Italy are the most ambitious. In

order to reach these targets, simplification of procedures is needed and more financing required.

(GeoDH, 2015).

Figure 2.4.2.3. Installed Capacity per Country - 2014

Source: EGEC

Figure 2.4.2.4. Geothermal District Heating Potential in

Europe, 2020 target

MWth

32

2.4.3. Legal, Financial and Cost Structure of Geothermal District Heating Projects

Legal and Framework Structure

Legal and financial structure and planning are main elements of geothermal district heating planning

and risk assessment. However, risk assessments depend on each type of project which can be different

based on location, regulation, technology, management, finance etc.

Nevertheless, there are also

general similarities for such

projects regarding legal and

financial frameworks for

geothermal district heating – as

can be seen in enclosed figure

2.4.3.1.

A Geothermal Company (GC)

financed by the equity investor

(20-30%) and by bank by loans

(70-80%), is established to

centralise the assets, rights and

operational agreements. This

company signs long term (>20

years), heat purchase

agreements with end users with

a fixed charge (capacity

charge) linked to kW of capacity

subscribed, and a variable

charge (“consumption charge”)

proportional to kWh supplied.

The company should also sign key contracts regarding engineering, procurement and construction and

operating and maintenance, for both the geothermal well and the district heating network. The company

also has to have insurance policies (civil liability, damage, geothermal resource risk if possible, etc.).

Finally, the company has to secure land rights, permitting and subsidies with the land owners and public

authorities or municipalities. (GeoDH, 2014).

Cost structure for Geothermal Heating

The risk characteristics of a geothermal heating project are different depending on the three stages of

the projects, which are: 1. Exploration, 2. Drilling, and 3. Building, which is less risky.

In a calculation presented in a GeoDH paper from 2014, it is estimated that, “a private investor who

would be given the opportunity to invest 20 million Euros in the building, and receives a feed-in tariff of

90-96 Euros/ MWh would earn around 9-10% per annum on the 20 million € invested. If that investor

financed two-thirds of this investment with debt, as is common practice for such investments, the return

on equity can rise to 20%. This observation leads us to the conclusion that a feed-in tariff, such as is

already available in the wealthier member states of the European Union, is sufficient to attract

investment for the building and operation stage of a geothermal electricity generating plant, if only the

exploratory and drilling stages are completed.” (Christian Boissavy, 2014).

It is therefore an important element of a geothermal heating project that there are options and

possibilities of support from public authorities towards the exploration and the drilling stage of such a

project. In the above mentioned paper it is recommended that the support should cover 75%-80% of the

exploration and drilling cost if the project fails. This is especially important due to the risk of test drilling.

In Iceland for example, the test drilling for such projects can be refunded by the Energy Fund if the test

drilling is not successful. On average the electricity generating geothermal plants are considerably larger

and more expensive than heat generating geothermal plants and the risks (investment & operation) for

Figure. 2.4.3.1. Legal and Financial Framework for Geothermal

District Heating

33

electricity generating geothermal plants over longer period of time is therefore larger. Regarding heat

generating geothermal plants, the benefits are greater when high temperature resources is used to

generate both heat and electricity than when it is used for heat alone.

The geothermal heat production has several advantages, such as:

1. Economic opportunity and savings. 2. Improvement of energy security. 3. Reducing greenhouse gas emissions. 4. Harnessing local resources. 5. Reducing dependency on fossil fuels for energy use. 6. Local payback in exchange for local support for deep drilling. 7. They complement existing district-heating networks offering an alternative to other fuels. 8. They can be combined with smaller binary cycle (if reservoir and economics allow) electricity

generating plants to bring the utilisation of the reservoir to the maximum. 9. May be a useful complement to regional and local economic development programmes with

positive effect on employment and the viability of public infrastructure. 10. They raise public awareness for the geothermal energy to a broader section of the public 11. Improving quality of life based on economic and environmental / climate benefits.

It is difficult or impossible to present standard costs of geothermal district heating projects, as the cost

vary between regions and variable conditions. Nevertheless, the costs of such a project can be

estimated, based on the most important parameters for the understanding of the individual projects, by:

first defining the basic conditions affecting the heat generation cost,

secondly by developing theoretical projects in order to explore economic viability.

Key factors for geothermal district heating projects are:

geological framework,

economic conditions and

demand.

Although it is difficult to

estimate the profitability

of such projects, the cost

for each project can be

based on the demand

structure, the geological

conditions, the costs of

capital and the existing

geological data, as is

shown in figure, 2.4.3.2.

The demand aspect

plays an important role in

defining the project and

the investments e.g.

drilling, size of the water

pump, buildings, district heating network and a power plant’s mechanisms. In addition, the evaluation

of heat production costs depends on the geothermal energy resource. It should also be noted that many

of these cost elements are the same as for a standard heat production installation.

However, due to the fact that every location has different demand conditions, it is not possible to

incorporate these factors in a general heat production cost calculation. Moreover, many costs are equal

to those of a conventional heat generation installation. A paper for GeoDH from 2014 presented a

calculation estimating the cost of a geothermal heat production project. The calculation was based on

the following costs elements:

capital cost (investments for drilling, water pump, substation, depreciation),

operational cost (electricity for pumping & equipment, maintenance).

Figure 2.4.3.2. Cost Structure of Geothermal Heat Generation Project

34

However, in addition to these costs, geothermal

heat generation plants have to be connected to a

network of plants using other energy sources, like

a gas-fired or coal-fired power plant to be able to

cope with peak loads. That kind of cost is not

included in the project example that will be

described in figure 2.4.3.3.3

Calculations on geothermal heat generation cost

carried out for GeoDH in 2014, involved three

projects 10, 15 and 20 MWth as shown in figure

2.4.3.3. It is interesting that the figure illustrates

that the generation cost is stable for a period of 30

years, (due to lower costs of capital over time),

which is opposite to the trend for forecasted prices

for fossil fuels. Higher cost for 15 and 20 MWth

projects than 10 MWth, is due to a higher capital cost in form of interests due to more expensive drilling.

As can be seen from figure 2.4.3.4, the cost

structure is different depending on size of

project, but for all projects the capital cost

(depreciation and interests) is the biggest

part of the overall cost, as this is a capital

intensive sector. For the 10 MWth case, the

biggest single cost factor is operation

coming from electricity cost to run the water

pump. For the biggest project the largest

cost factor is interest. As these projects are

capital intensive, interest plays a major role

regarding profitability, as can be seen for

the sensitivity analysis in figure 2.4.3.5,

where the 5% interests cost go from 21,9%

up to 38,2% if the interests are 10%. Rates

of interest are therefore one of the biggest

risk factors.

3 The geothermal generation heat project provides the base load energy for district heating, which will be delivered to the district heating network,

total hours of the plant will be 8.000 hours/year. The focus will be on generation cost so no revenues will be calculated. Life time of the project is

estimated 30 years of operation; repayment of loans is 30 years, depreciation off the drilling is 50 years, depreciation of the substation is 30 years,

depreciation of the pump is 3 years and interest rate will be 7,5%. The costs for a district heating network and special installations, as well as taxes

and fees, are not included.

0

5

10

15

20

25

30

35

1 5 10 15 20 25 30

20 MWth 15 MWth

10 MWth

Figure 2.4.3.3. Heat Generation Cost of three Different Plants

Year

€/MWht

h

Sources: GeoDH, 2014

32.1 28.5 25.4

21.9 30 38.2

14.212.5

11.2

31.8 28.2 25.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

5% 7.50% 10%Depreciation Interest

Maintenance Operating cost

Figure 2.4.3.5. Cost Structure of a 15 MWth Project and Sensitivity

Analysis of Interest

Source: GeoDH, 2014

28.9 28.5 28.2

26.9 30.8 33.7

11.312.5 13.4

32.9 28.2 24.7

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

10MWth 15MWth 20MWth

Depreciation Interest

Maintenance Operating cost

Figure 2.4.3.4. Cost Structure of Generation Project Depending on Size

Source: GeoDH, 2014

9.3

16.0

7.0

14.0

6.2

12.0

3.9

6.0

0.0

5.0

10.0

15.0

20.0

100% 120% 140% 160% 180% 200%

Figure 2.4.3.5.A. Heat Generation Cost for District Heating Network by Fuel

Domestic Gas

Light fuel Oil

Condensing Gas Boiler (without DH)

Geothermal Energy

Fuel cost compared with 2006 = 100%

Source: GeoDH 2014.

c€/kWh

35

Fraunhofer Institute for Environmental, Safety and Energy Technology carried out a study for Germany,

comparing the heat generation costs between fossil fuels and geothermal heat plants delivering heat to

district heating networks, (2006 prices). The study shows, that cost structure of generating heat from

fossil has higher operating costs than geothermal which has higher fixed costs. Total heat generation

costs of geothermal energy are low in absolute terms due to the high utilisation rate and low variable

cost. During increase of primary energy prices, the total costs of generating heat from fossil fuels are

rising more rapidly due to high variable cost, than from geothermal, as can be seen on figure 2.4.3.5.A.

2.4.4. Global Price Comparison of Geothermal District Heating

Due to its diffusive nature, there are economic limits to the geographic transport of heat. As a result, the

utilization of geothermal resources for direct applications is quite localized, as demonstrated by the fact

that the longest geothermal heat transmission pipeline in the world, found in Iceland, is 64 km in total

(Georgsson et al., 2010). In contrast, electricity can be transmitted thousands of kilometres and oil can

be shipped around the globe. In Europe, gas is a common source of heat that can be transported in

pipelines over thousands of kilometres. Nevertheless, local resources are commonly used where

possible, which results in substantial differences in the energy mix between countries. Figure 2.4.4.1

shows this variation for heating in the Nordic countries. District heating systems are in many of the

regions, with the exception of Norway, where electricity covers 70-80% of heating demand, with the

remainder primarily met by bioenergy (7%), oil (7%) and district heating (4%) (NVE, 2013).

Out of all countries surveyed by Euroheat & Power, Iceland has the lowest unsubsidised, district heating

price of 2,0 €¢/kWh compared with an average value of 5,5 ¢€/kWh, and a maximum value of 20,7

¢€/kWh. The great variation in prices within the Nordic countries, which all have cold climates and

therefore a considerable need for heating, is of particular interest. Out of the 20 surveyed countries, the

highest price is encountered in Denmark (except Japan) and the second highest in Sweden. It is

probable that the reasons are not only economic, but also political. In general, taxes tend to be high in

the Nordic countries and countries with limited domestic energy options, such as Denmark, have been

supporting and subsidising renewable energy such as wind, which have resulted to higher price to

customer. The fortune of Icelandic consumers is therefore the abundance of low-price, environmentally

friendly geothermal heat that translates to the lowest average district heating price on record in Europe

and possibly the wider world. In the United Kingdom, one of Iceland’s neighbouring countries, the main

source of energy for heating is gas (Association for the Conservation of Energy, 2013). In 2009, the

average gas price in the UK was 11.84 EUR/GJ, including all taxes and levies (Eurostat, 2014).

Assuming 80% efficiency (Association for the Conservation of Energy, 2013), brings the price up to

2.0

5.35.8

7.4

10.0

1.7

3.43.9 3.9

5.0 5.2 5.4 5.5 5.6

6.6 6.7 6.97.3 7.3

8.1

3.1

4.4

0

2

4

6

8

10

12

Figure 2.4.4.1 Average District Heating Prices in Europe, the United States, Japan and S-Korea

Source: Orkustofnun Data Repository: OS-2016-01. All prices are without VAT* Subsidised Price, without VAT 2015.

Pricec€/kWh

Average price 5,5 c€/kWh excluding Japan

20,7

36

14.80 EUR per GJ of usable heat. This translates to 5.33 EUR¢/kWh, or 7.12 USD¢/kWh, which is

slightly above the average price for district heating in Europe, and substantially higher than the price in

Iceland. From these comparisons, it is evident that Icelandic geothermal district heating prices are very

competitive. However, it is important to be aware of differences in climatic conditions between countries

that lead to differences in the length of the heating season. Shorter heating seasons may lead to higher

unit prices, as district heating companies must cover incurred costs based on sales over a limited time

period each year. Other factors that influence heat demand, and thus consumers’ wallets, include:

• Ambient temperature: The heat flow through a building wall is directly related to the temperature difference over the wall, indicating that year-to-year fluctuations in ambient temperature affect heat demand as was clearly observed in Norway in 2010 (NVE, 2013).

• Indoor temperature, which is influenced by personal comfort choices, habits, prices and other factors, and can therefore vary over the population of a country.

• Insulation and airtightness of buildings, which may vary between countries.

• Ventilation, preferences of home owners.

• Heat metric and pricing system (HMPS). The HMPS is a key element regarding the price and consumption. In some less developed countries there is no individual HMPS, and even confusing management and ownership of the GeoDH companies, damaging price, demand and efficiency.

CONCLUSION

Despite hypothetical arguments, imprecision in data, and a rough methodology, the comparisons

presented show that the utilization of geothermal resources for space heating can be of substantial

economic benefit to consumers. (Haraldsson, Economic Benefits of Geothermal Space Heating from

the Perspective of Icelandic Consumers, 2014).

2.4.5. The Geothermal Global Market Structure

Geothermal Project at Stage of Development

(Examples of companies)

Preliminary Survey

Exploration

Test Drilling

Field Development

Engineering

Construction

O&M

ISOR (Iceland)

West –JEC (Japan),

GEO-t (Germany),

SKM (New Zealand),

GeothermEX (USA),

Icelandic Drilling

(Iceland)

Thermasource (USA),

Baker Huges Drilling (US),

Mannvit,

Verkís, Efla,

Reykjavik

Geothermal

(Iceland),

Power

Engineering

(US),

Mitsubishi,

Fuji, Toshiba

(Japan),

UTC Power

(US, Italy),

Alstom

(France)

CFE,

EDC

Landsvirkjun, Reykjavík Energy, HS Energy

(Icelandic Geothermal Companies)

PT Pertamina (Indonesia), Ormat (Israel, USA)

CFE (Mexico), EDC (Philippines)

Worldwide only a few companies cover all phases of geothermal development

Sources: ESMAP, 2012, US Department of Energy 2014, National Energy Authority Iceland, 2014.

The global geothermal sector includes about 20 large firms providing a wide range of services, expertise

with specific set of services for a project developer. A geothermal development process normally lasts

5 - 7 years, and around half the cost of a geothermal project is incurred prior to the drilling of production

wells, front-loading both the costs and risk profiles of a geothermal project compared with alternative

technologies. Few vertically integrated firms are active at all stages of a project’s development, but the

majority of geothermal firms specialize in a specific niche or set of niches, including Icelandic companies.

One such firm from Iceland (ISOR) is a world leader in the exploration and confirmation of geothermal

resources, through the use of geophysical, geological, and geochemical analyses.

37

2.4.6. Demo I - Business Model for Geothermal District Heating and Gas

This demo case is based on comparison between a district heating network using natural gas and a

geothermal district heating network, in the Paris area, described in GeoDH paper from 2014. The project

(geothermal doublet) has been running for 31 years. However, the geothermal water flow rate is

decreasing. (GeoDH, 2014).

It has been decided to re-drill a new doublet in order

to continue to exploit the heat underneath the city.

The two deviated wells are expected to be drilled in

2015 and the new doublet will be put in production

in the winter of 2016. The new doublet is designed

with abig diameter in order to allow the production of 350

m3/h, which represents a heat capacity of 12,2 MW

assuming a production temperature at 70°C and reinjection at 40°C.

These new doublets can be re-cased after 35 years of exploitation and restart an exploitation period of

35 years even at a reduced production flow rate. Consequently, the new doublet will be exploited for a

minimum time period of 70 years from 2016 to 2086.

Technical aspects of the project were as follows:

> Heating needs of the existing network: 67.480 MWh/year.

> Total needs including the losses: 81.980 MWh/year.

> Geothermal station capacity 15 MW.

> Geothermal annual production: 5.300 MWh.

> Pumping system power for production: 400 kW and 1.650 MWh/year.

> Pumping system power for injection: at 600 kW and 1.900 MWh/year.

> Back up and complementary energy used is natural gas.

> Back-up power installed at 41MW with boiler efficiency at 90%.

> Annual gas consumption: 20.347 kWh.

Operational benefits of geothermal

If we look at the operating and maintenance costs it is expressed into four sections for both systems:

geothermal loop including the well, the main heat exchanger, and surface and network installation

downstream from the heat exchange with hot geothermal water (Table 2.4.6.2.). Table 2.4.6.1, shows

that the annual benefits to exploit the district heating network using the geothermal doublet are of 1918

K€ (difference between 4.601 with gas and 2.683 with geothermal + gas).

Investment cost of a new geothermal doublet

The total investment cost for the new geothermal doublet is 11,9 million € + 2,3 million € (see table

2.4.6.3 and 2.4.6.4) or total 14,3 million €. (This includes doublet of drilling in 9’’5/8 casing at the top of

the reservoir with a maximum deviation of 50°, and all the equipment in the well and at the surface to

exploit the geothermal water). (1 k € = 1.000 €)

Table 2.4.6.2. Operating and

Maintenance Cost

Table 2.4.6.1. Comparison of District Heating

Powered 100% with Gas and Geothermal + Gas.

Operating costs and maintenance k Euros

Geothermal loop

P1 Electricity 240

Corrosion inhibitors 70

Water 5

P2 Regular maintenance 30

Electrical Logging 20

P3 Heavy maintenance 88

Equipment replacement 40

Work force and 24/24h follow up 15

Stock ,for repairs 15

P´3 Work over in the wells 55

Insurance 45

District heating network surface installations

P1 Electricity 20

Natural gas 1.100

P2 Work force and 24/24h follow up 420

P3 Equipment replacement 320

P´3 Stocks for repair 50

Insurance 150

Total 2.683

Annual expenses (K Euros no VAT) Gas Geothermal

(k = 1000) solution

Gas to be purchased on the market 3.830

Gas to be purchased on the market 1.099

Electricity consumption for gas plant 22 22

Electricity for geothermal pumping 240

Ordinary geothermal maintenance 550

Ordinary gas station maintenance 423

Ordinary gas station maintenance 200

Ordinary network maintenance 326 326

Geothermal installation replacement 246

Total annual expenses 4.601 2.683

38

Investment cost – Payback time of the geothermal CAPEX

If we look at the CAPEX4 model, for geothermal the value is 14,3 million € and the annual benefit of

expenses using geothermal - amounts to 1,9 million €. The conclusion is payback period of 7,45 years

of the investment, if we exclude the financial approach and the fact that the community has to borrow

the main part of the investment.

The main financial factors

The main financial factors of the project were as follows. Project life is 20 years, discount rate at 6%,

interest rate at 3,2% inflation rate at 2%, annual escalation electricity price at 2%, annual gas escalation

price at 5%, annual heat escalation price at 3%, and electricity purchase at 70€/MWh. The investment

is 14,3 million € and the equity at 400 thousand €.

Key Findings – Cost Comparison – kWh Produced by Natural Gas and Geothermal Heat

The key findings of this demonstrative example in France is that the actual production cost of the heat

produced using 100% gas is about 5,6 c€/kWh for a final selling price to the consumer at 70 c€/kWh, all

inclusive. However, the same kWh produced with a mix of natural gas (24,82%) and geothermal

(75,18%) is 3.27 c€/kWh. The benefits and difference, which is 2,33 c€/MWh, will allow to finance the

construction of the doublet. The annual production of the project is 81.980 kWh/ year with a turnover of

5,739 k€. The annual profit using geothermal is 1.918 K€.

This profit will pay back the investment cost in 7,45 years, meaning that after 8 years the community will

start to gain about 2 million euros per year, or it would be possible to lower the price of 2,33 c€/kWh and

keep the profit as before (GeoDH, 2014). This demo example, shows the opportunities and economic

benefit that may be gained from geothermal resources in combination with other energy resources in

district heating.

4 CAPEX = Capital expenditure

Drilling of 2 deviated wells K Euros

EurosGrant application ADEME 10

Insurance application SAF Environment 10

Geothermal lease and application for permits 95

Civil works (platform, fence, anti-noise , cellars) 700

Cranes works, transportation, storage 60

Drilling rig mob, demob and moving 650

Drilling (energy included) 2.200

Overreaming 250

Drilling mud 520

Drilling tools 170

Deviational including personnal 700

Electrical logging 520

Casings 920

Installation of casings (accesories , screwing) 310

Cementing 900

Stimulation and development 85

Acidizing jobs 130

Mud treatment and cuttings removal 960

Well heads and valves 130

Geological follow up 410

Supervision on site 24/24 400

Cleaning of the platform 500

Insurance SAF short and long term 630

Engineering 190

Provision for unexpected 480

Total 11.930

Table 2.4.6.4. Investment Cost of Drilling

two Deviated Wells.

Table 2.4.6.3. Investment Cost, Geothermal

Loop at the Surface.

Geothermal loop at the surface K Euros

EurosProduction pump (300 m3/h) 215

Pumping tubing (DN 175 coated) 140

Transformer 100

Piezometric tubing 10

Inhibitors line and accessories 180

Injection pump 60

Frequency variators 80

Regulation cos phi 20

Titanium plate heat exchangers 215

Handling of equipments 20

Geothermal water piping at the surface 210

Filters station 25

Monitoring of the loop including instruments 15

Water tank (4m3) 25

Digital systems 20

Architect, engineering and control 300

Heat station surface piping (DN 200 to 350) 450

Connection to the grid 90

Electric rack 95

Pumps for secondary loop 100

Total 2.370

39

As can be seen from the case in France, the actual annual operational / production cost of the heat

generated using 100% gas is about 4,6 M€ (5.6 c€/kWh) - but only 2,7 M€ (3,27 c€/kWh) with a

combination of geothermal (75%) and gas (25%).

The benefits and difference which is 2,33 c€/MWh will allow to finance the construction of the doublet –

and the profit will pay back the investment cost in 7,45 years – meaning that after 8 years the community

will start to gain about 2 million euros per year – or it would be possible to lower the price of 2,33 c€/kWh

and keep the profit as before.

Figure 2.4.6.1.

Figure 2.4.6.2.

40

Table. 2.4.6.5. Business Model - for Geothermal District Heating and Gas

Years

Base

-10

12

34

56

78

910

11

12

13

14

15

16

17

18

BA

SIC

DA

TA

Pro

ject

life (

years

)20

Inve

stm

ents

K €

14.3

00

7.1

50

7.1

50

Debt

k €

12.2

97

Debt

k €

Debt

K €

Equity k

€4.0

00

Dis

cout

rate

%6

Inte

rst

rate

%3,2

Infla

tion %

2

Annual O

M c

ost

k €

00

2.6

83

2.7

37

2.7

91

2.8

47

2.8

53

2.9

10

2.9

68

3.0

28

3.0

88

3.3

57

3.4

24

3.4

93

3.5

62

3.6

34

3.7

06

3.7

81

3.8

56

3.9

33

Geoth

erm

al pro

duction

78.1

61

78.1

61

78.1

61

78.1

61

77.2

23

77.2

23

77.2

23

77.2

23

77.2

23

80.6

62

80.6

62

80.6

62

80.6

62

80.6

62

80.6

62

80.6

62

80.6

62

80.6

62

Geoth

erm

al selli

ng p

rice €

/MW

hr

70

0,0

00,0

070,0

072,1

074,2

676,4

978,7

981,1

583,5

886,0

988,6

791,3

394,0

796,9

099,8

0102,8

0105,8

8109,0

6112,3

3115,7

0

Equity d

epre

cia

tion (

linear)

k €

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

200

Pro

fit t

axation r

ate

%0

00

00

00

00

00

00

00

00

00

00

Geoth

erm

al re

venues k

€5.4

71

5.6

35

5.8

04

5.9

79

6.0

84

6.2

67

6.4

54

6.6

48

6.8

47

7.3

67

7.5

88

7.8

16

8.0

50

8.2

92

8.5

40

8.7

97

9.0

61

9.3

33

EC

ON

OM

IC A

NA

LY

SIS

Years

of lo

an r

epaym

ent

20

01

23

45

67

89

10

11

12

13

14

15

16

17

18

19

Years

of lo

an r

epaym

ent

14

01

23

45

67

89

10

11

12

13

Years

of lo

an r

epaym

ent

90

12

34

56

78

Dept

1 r

epaym

ent

annuity k

€1.0

08

989

969

949

930

910

890

871

851

831

812

792

772

753

733

713

694

674

654

635

Dept

repaym

ent

annuity k

€0

00

00

00

00

00

00

0

Dept

repaym

ent

annuity k

€0

00

00

00

00

Dept

repaym

ent

annuity k

€1.0

08

989

969

949

930

910

890

871

851

831

812

792

772

753

733

713

694

674

654

635

Inte

rest

on d

ebt

k €

394

374

354

334

315

295

275

256

236

216

197

177

157

138

118

98

79

59

39

20

Inte

rest

on d

ebt

k €

Annula

inte

rests

on d

ebt

(depti)

Inte

rest

on d

ebt

k €

394

374

354

334

315

295

275

256

236

216

197

177

157

138

118

98

79

59

39

20

Net

incom

e k

€-8

.358

-8.3

39

1.6

19

1.7

49

1.8

83

2.0

22

2.1

41

2.2

86

2.4

35

2.5

89

2.7

47

3.0

18

3.1

92

3.3

70

3.5

55

3.7

45

3.9

40

4.1

42

4.3

51

4.5

65

Cost

effe

ctive

ness

0,0

00,0

00,3

00,3

10,3

20,3

40,3

50,3

60,3

80,3

90,4

00,4

10,4

20,4

30,4

40,4

50,4

60,4

70,4

80,4

9

FIN

AN

CIA

L R

AT

IOS

Ne

t p

rese

nt

va

lue

(N

PV

) k €

12.7

27

Inte

rna

l ra

te o

f re

turn

(IR

R)

%12,7

Pro

fita

bil

ity i

nd

ex

(P

I)1,9

9

41

2.4.7. Demo II - Business Model for Geothermal District Heating and Gas

This demo case is based on comparison between eight scenarios of a geothermal district heating

network in Eastern Europe using geothermal resources for district heating as a base load and gas for

peak loads. The demo case is based on calculation made by Mannvit Engineering in Iceland and the

Icelandic National Energy Authority. (Iceland M. E., 2015) Geothermal energy has been used

successfully for district heating systems in many parts of the world including Central and Eastern

Europe, there are therefore no unknown technological factors to this project. 5 The following economic

assumptions are made for the financial analysis:

> Cost/benefit analysis is based on “Guide to Cost Benefit Analysis of Investment Projects”

(EU in July 2008), see more detailed assumptions in Table 2.4.7.1.

> Cost data is based on quotes from similar projects.

> Gas and electricity prices based on industry prices obtained from EU data

(3,0 and 8,1 cEUR/kWh respectively).

> Selling price is optimized utilising EU Grant.

The following technical assumptions are made:

> Gas powered district heating networks are in place.

> Gas boilers will be replaced with a geothermal system.

> Some of the existing gas boilers will be retained and used for topping up at peak loads.

> Geothermal will provide the base load.

- A 50/50 geothermal/gas boiler load division is assumed.

- Utilising gas only for peak load results in geothermal/gas heat sold division approximately 95/5.

Figure 2.4.7.1 Heat load duration curve

Models for two types of geothermal wells were prepared:

5 This case was prepared by National Energy Authority and Mannvit Engineering in Iceland.

Well

type

Depth

(m)

Cost

(MEUR)

Temp

in/out

(°C)

Yield

(kg/s)

Utilization

method

Total heat

load (incl.

gas boilers)

(MW)

Heat sold

(GWh)

New Existing Geo

(95%)

Gas

(5%)

A 1500 1.8 0.40 95/70 25 Direct use 10 12.3 0.6

B 1200 1.0 0.15 50/30 25 Heat pump 5 6.1 0.3

42

From these models eight scenarios are introduced:

Exist

ing

or

new

well

Well

type

No of

wells

Geo

selling

price to

DH

(c€/kWh)

X

EU

gra

nt

%

DH cost

(c€/kWh)

End

Price

GeoDH

to

con-

sumer

(c€/kWh)

Gas

selling

price to

DH

(c€/kWh)

Y

Price

difference

of GeoDH

& Gas to

DH

(c€/kWh)

(X-Y)

CAPEX

(M. €)

1 New A 1 7.5 21.6 1.5 9.0 3.6 3.9 5.8

2 Existi

ng

A 1 4.8 22.6 1.4 6.2 3.7 1.1 2.3

3 New A 2 5.7 20.6 0.8 6.5 4.3 1.4 10.2

4 Exist

ing

A 2 2.9 19.3 0.7 3.6 4.4 -1.5 3.1

5 New B 1 7.4 21.5 1.5 8.9 3.6 3.8 4.7

6 Existi

ng

B 1 5.8 23.0 1.6 7.4 3.5 2.3 2.7

7 New B 2 5.4 21.4 0.9 6.3 4.2 1.2 8.0

8 Exist

ing

B 2 3.8 22.1 0.9 4.7 4.2 -0.4 3.8

Compared to average district heating prices in the western part of Ukraine (2,04 EURc/kWh, subsidised

price) the optimized selling price to district heating companies (wholesale price) of heat is more

economical for scenarios 4 and 8. This shows that at least two existing wells are needed in order to

reduce the average heat prices. Drilling two new wells is less economical. The following sensitivity

analysis shows how individual inputs affect the total outcome. In this case it is also important that

geothermal district heating prices are at least competing on equal terms with gas, coal or other

alternative energy resources, and not competing with subsidised resources.

Scenario 4 – 2 existing wells, 95°C

Figure 2.4.7.2.A. Sensitivity Analysis of Scenarios 1 – 8

43

Scenario 8 – 2 existing wells, 50°C

Scenario 1 – 1 new well, 95°C Scenario 2 – 1 existing well, 95°C

Scenario 3 – 2 new wells, 95°C Scenario 5 – 1 new well, 50°C

Scenario 6 – 1 existing well, 50°C Scenario 7 – 2 new wells, 50°C

Figure 2.4.7.2.B. Sensitivity Analysis of Scenarios 1 – 8

44

Summary - comparison of scenarios

Following is the breakdown of the capital costs (CAPEX), of yearly income and operational costs (OPEX)

for the two most economical scenarios, 4 and 8. Scenarios 4 and 8 involve utilizing two existing wells

either directly (sc 4) or with a heat pump (sc 8). Examining the tables leads to the following conclusions:

> Well costs (restoration of existing wells and well pump) are greater for scenario 4.

Deeper wells are needed to reach higher temperatures as required for direct use.

> Heat plant costs are greater for scenario 8 because of the heat pump.

> Heat sales are greater for scenario 8 due to higher selling prices. Higher selling prices are

required to achieve the desired 5% IRR of equity while maximizing the EU grant.

> Electricity costs are greater for scenario 8 due to electricity consumption of the heat pump.

These conclusions are an example, regarding geothermal district heating projects in Ukraine. However,

each geothermal district heating project depends on technical, economic and environmental conditions

in each place.

District Heating Network - The above calculations assume that there is no cost incurred due to District Heating Network (DHN) systems. Assuming that costs for a new 10 MW system is similar to the primary pipeline (1.100.000 EUR), a percentage increase can be calculated for each scenario and the effect on IRR can be investigated through the sensitivity graphs. Given the above cost assumptions for DHN, the price for scenario 4 would need to be increased to3.7 cEUR/kWh to obtain a 5% IRR.

CAPEX

(Thousands EUR)

Scenario Yearly income and OPEX

(Thousands EUR)

Scenario

4 8 4 8

Re-Engineering 300 300 Heat sales 375 491

Wells 800 300 Organization & Overhead (27) (27)

HT station expansion 50 50 Operation & Management (162) (162)

Heat Plant 550 1,500 Electricity (14) (109)

Pipeline (2 km) 1,100 1,100 Gas (17) (17)

Engineering 170 265 EBITDA 155 175

Other 170 265

Total 3,140 3,780

Table 2.4.7.1 Major Assumptions for the Financial and Economic Analysis

Item Value Comment

Project lifetime 30 years 30 years projected lifespan

Methodology See “Guide to Cost Benefit Analysis of Investment Projects” (EU

in July 2008)

Type of Analysis flat rate Yield is in real terms, not nominal

Income Tax 16% Used in Financial Sustainability Analysis only

Discount Rate (DR) 5% As suggested in the guide

Debt Interest Rate 3% Used for comparison purposes in this analysis

Debt Fee 0,5%

Payback Start 3 years after start

Payback Period loans 20 years Equal Principal Payments

Payback Period 25 years Net cash flow & equity, based in 5% discount rate

EU Grant X% Calculated with the “Funding Gap” Method (~12-16% in

analysis). Yearly payments as a proportion of spent CAPEX.

Debt Percentage 80%*(1-X) 80% of CapEx not supported with EU Grant

Equity Percentage 20%*(1-X) 20% of CapEx not supported with EU Grant

Price of Gas & Electricity 3,0 – 8,1 €c/kWh Gas and electricity prices based on industry prices from EU data

Selling Price difference

in the model 3,4 – 8,7 €c/kWh Output in the model – depending on Donor grant

45

If the investment and operational

cost model is analyzed further

in scenario 4 per c€/kWh, the

cost structure can be seen in

following graphs.

In general, a geothermal district

heating project is based on the

estimated geothermal heat that

can be produced from the

reservoir and an analysis of

the heat demand.

However, the business model

of costs and revenue streams

are specific to each individual

project.

Because geothermal

district heating projects involve

uncertainties and risks, solid

project planning and risk

management are essential from

the earliest stage.

The opportunities and utilisation

of them are shown in

figure 2.4.7.2 where step by

step the coordination of the

project is explained and can be

treated as a model to promote

the early stage development

projects.

The operational cost structure (OPEX) of scenario 4, can also be seen in this pie charts with and without

EBITDA. If we look at the EBITDA, (chart to the left) it can present the cost of the investment and what

is needed to pay back the investment cost and other financial cost included rate of return.

The picture to the right is the operational cost without EBITDA.

46

Main Challenge of geothermal district heating projects

Matching resources and demand.

Evaluating the thermal energy that could be produced at the surface.

Dealing with risk management linked to the geology.

Financing and refurbishing/ developing new heat grid infrastructures.

Increasing profitability of geothermal district heating projects by developing systems which can also

provide cooling. (GEODH, 2014)

Figure 2.4.7.3. Model for Geothermal District Heating – Go / No-Go Options

47

3. International Development and Financing of Geothermal

Projects

3.1. International Development Models of Geothermal Projects

When looking at international experience regarding development of geothermal models, one finds that

there are different models all over the world, as can be seen in figure 3.1.1 with eight different models

that have been utilized in geothermal power development. As the figure shows, the early stage of

geothermal project development depends heavily on public sector investments, but the private sector

has a tendency to enter the project at later stages.

The financing arrangements and the risk can vary widely. In Mode 1 the project is financed either by the

national government and state-owned utility, or by government in conjunction with grants from donor

nations and loans from international lenders. In this model, risk is borne almost exclusively by the

national government and will only be reduced by revenues from the sale of electricity and by grants from

donor nations, if available. It can be seen that most private investors stay away from taking the full

resource risks in geothermal projects. Model 7 is a more typical case for a privately led development. In

this model, government companies perform limited exploration, the data being in the public domain and

accessible by developers. (ESMAP, 2012)

Source: ESMAP, 2012

Figure 3.1.1. Different Models of Private and Public Geothermal Projects

48

3.2. International Financing Models of Geothermal Projects

3.2.1. Financing Options for Different Project Phases

As the previous discussion indicates, mobilizing capital for geothermal development projects from

commercial sources is more complicated than for conventional power projects, and for most other

renewable energy technologies. This is especially true for early stages of project development,

particularly the test- and initial production drilling, when the risk is still high and the cost of each well can

be millions of dollars. However, the conditions for financing are different at various phases of the project,

each phase calling for a different menu of financing options. Table 3.1 summarizes these options,

breaking the geothermal development process into three distinct stages:

early stage (high risk)

middle stage (medium risk and

late stage (low risk).

It is not considered possible to depend on commercial capital for geothermal development, even in

developed countries. Since it is difficult to get access to support capital in those markets, incentives like

loan guarantees and investment tax credits are often granted by the government to geothermal

developers. As the challenges to attract private capital to geothermal projects are often greater in

developing countries, the burden of the public sector (governments, international donors, and financial

institutions) to contribute financial support is likely to be an essential element of success in mobilizing

capital to such projects. It has been estimated by ESMAP that since the financial crisis in 2008,

development banks have provided 53% of total geothermal project financing, and the financing provided

by those banks was a major factor in bringing geothermal project financing to a record-high level of US$

1,9 billion invested in 2010 (BNEF 2011). (ESMAP I. W., 2012).

Figure 3.2.1.1. Financing Options for Different Stages of a Geothermal Development Project

Project

Development

Stage

Early Stage

Surface exploration,

test drilling, initial

production drilling

Middle Stage

Resource confirmation,

field development,

complete production

drilling

Late Stage

Power plant

engineering,

construction and

commissioning

Risk of Project

Failure

High Medium Low

Typical Financing

Sources

Balance sheet financing by large developer

Private equity (project finance) possible but with high risk premium

Government

incentives (capital cost sharing, soft loan or guarantee)

Concessions funds from international donors.

Balance sheet financing, corporate debt or bonds issued by a large developer

Public equity issuance

Construction (short-term) debt

Loan guarantee by government

Long-term debt or guarantees from IFIs

Export credit agency financing

Construction debt

Long-term debt from commercial sources

Long-term debt from IFIs

Partial risk guarantee or partial credit guarantee instruments to attract or improve tenor and terms of commercial debt

Export credit agency financing

Source: ESMAP, 2012

49

3.2.2. Geothermal Development Assistance – Global Lessons Learned

When looking for guidelines for successful geothermal development assistance at global level, it is

valuable to look for key lessons learned from international financial institutions. The Energy Sector

Management Assistance Program (ESMAP) is a global, multi-donor technical assistance trust fund

administered by the World Bank and cosponsored by 13 official bilateral donors, established in 1983.

Based on their long and professional experience - their recommendation regarding geothermal

development assistance is as follows: “Official Development Assistance (ODA) available from

multilateral and bilateral development banks, as well as from climate finance facilities, has a key role to

play in supporting geothermal energy development. The concessional nature of capital supplied by

climate finance vehicles, such as the Clean Technology Fund (CTF) and the Scaling-up Renewable

Energy Program (SREP), coupled with the involvement of major international development

organizations, such as multilateral development banks (MDBs), creates unique opportunities for

leveraging capital from various other sources to support low carbon investments.

Considerable efforts and resources in recent years have been devoted to attempts to set up funds that

use concessional financing to mitigate geothermal resource risk. Two significant programs, the Europe

and Central Asia (ECA) GeoFund and ArGeo, supporting the development of such funds have been

initiated under the auspices of the World Bank. In both cases, the Global Environment Facility (GEF)

has been the main source of concessional capital. The design and operation of these programs has

helped the international community learn valuable lessons and develop a better understanding of the

available options for the future.

Key principles underlying the design of a successful global or regional MDB-supported facility

to promote geothermal development have emerged from this experience that can be summarized

as follows:

1. The facility needs to be well staffed and professionally managed.

2. It needs to have a critical mass of concessional capital sufficient to leverage co-financing from the market at large, including private sector debt and equity.

3. The greatest impact from concessional financing on the bankability of a typical mid-size geothermal power project can be expected when such financing is for the test drilling phase of

project development.

4. Success during the test drilling phase is key to bridging the crucial gap between the early start-up phases that are unlikely to attract debt financing and the more mature phases of the

project when financiers begin to see the project as increasingly bankable.

5. The geographic scope of the project portfolio should cover areas containing well established and highly promising geothermal reservoirs, principally those suitable for electricity generation.

The areas should also be sufficiently wide to allow for a diverse portfolio of geothermal project

locations to reduce the concentration of resource risk.

6. The operational procedures of the facility should include incentives for the management to apply prudent investment risk management principles and techniques.

Possible designs for a donor-supported geothermal development facility include: a direct capital subsidy

or grant facility; a loan (on-lending) facility; and a risk guarantee or insurance facility. The choice of the

design depends on the particular circumstances of the country or region and of the donor agencies

involved. In principle, any of these designs can reduce the private investors’ risk and thus reduce the

risk premium for the return on equity and the overall cost of capital, opening up new opportunities for

attracting investments to scale up geothermal power.” (ESMAP I. W., 2012)

50

II. GEOTHERMAL RESOURCES AND OPPORTUNITIES IN

UKRAINE

4. Ukrainian Geothermal Challenges and Opportunities

4.1. Ukraine National Renewable Energy Action Plan, to 20206

4.1.1. Policy Overview

Ukraine is an energy-scarce country, imports account for about 70% of its natural gas consumption. At

the same time, the energy intensity of domestic economy is 3-4 times higher than for economically

developed countries, which renders Ukraine extremely sensitive to the natural gas import conditions and

makes it impossible to guarantee normal conditions of the vital activity of people and budget-funded

institutions. Chapter 4.1 is based on contribution and edition from State Agency for Energy Efficiency

and Energy Saving of Ukraine. (SAEE, 2014).

Utilisation of renewable energy sources is one of the most crucial areas in Ukraine’s energy policy aimed

at saving conventional fuel and energy resources and improving environmental conditions. Increasing

the use of renewable energy sources in Ukraine’s energy balance will diversify the country’s energy

sources, by promoting the country’s stronger energy independence.

At present, the annual technically

achievable energy potential of

renewable energy sources in Ukraine,

as calculated by the Institute of

Renewable Energy of the National

Academy of Sciences, is 68,6 Mtoe,

which is about 50% of the overall

energy consumption in Ukraine. Key

areas of renewable energy sources use

in Ukraine are: wind energy, solar

energy, hydro, biomass, geothermal

energy, and heat pumps.

As of the end of the first half of 2014,

overall electrical capacity of renewable

energy facilities working under the feed-in tariff scheme in Ukraine was 1.419 MW, including wind – 497

MW, solar – 819 MW, small hydro – 77 MW, biomass and biogas 26 MW. Installed capacity of the

facilities producing heat from renewable energy sources is greater than 1.070 MW.

The year 2013 became generally emblematic for the domestic renewable energy that not only

maintained but also substantially accelerated its development rates. For example, in 2013 installed

capacity of renewable energy facilities almost doubled to exceed 1 GW, whereas annual production of

electricity from renewable sources exceeded 1 billion kWh already in September. The first contract for

delivery of Ukrainian-made wind generators to Kazakhstan was signed.

The rapid and positive development dynamics of the renewable energy sector has resulted from a

consistent and prudent state policy aimed at developing the use of renewable energy sources, which

ensures greater environmental and energy security, development of industry and diversification of

energy sources.

6 National Renewable Energy Action Plan by 2020

Figure 4.1.1.1. National Action Plan for Renewable Energy for the Period until 2020

51

To encourage development of renewable energy and use of renewable energy sources and alternative

fuels in Ukraine, the Tax and Customs Codes of Ukraine contain provisions that envisage: land tax

reduction for renewable energy enterprises and tax exemption of:

operating profits of the energy

companies producing electricity

from renewable sources,

biofuel producers’ profits earned

from biofuel sales,

company profits earned from

combined electricity and heat

production and/or production of

heat using biological fuel types,

profits of producers of machines,

equipment and devices for the

manufacture and reconstruction of

technical and transport means

consuming biological fuel types,

VAT exemption for the transactions

related to importing of equipment

intended for renewable energy sources, equipment and materials for production of alternative fuels

or for production of energy from renewable sources, as well as import duty exemption for the above-

mentioned equipment and materials.

The Law of Ukraine on Electric Power Engineering envisages setting a feed-in tariff at which electricity

produced by electric power facilities from renewable energy sources is purchased (except blast-furnace

and coke-oven gas; and with the use of hydro energy – produced only by micro-, mini- and small

hydropower plants).

The Cabinet of Ministers of Ukraine Executive Order No. 1071 of 24th July 2013 approved the updated

Energy Strategy of Ukraine up to 2030.

The Energy Strategy of Ukraine up to 2030 specifies that adoption of renewable energy sources is an

important factor for raising the energy security level and for reducing the energy sector’s environmental

anthropogenic impact. Large-scale utilisation of the renewable energy sources’ potential in Ukraine is

not only of domestic but also of great international importance as a weighty factor for counteraction to

global climate change in general and for improvement of the overall energy security of Europe.

According to the basic scenario in the Strategy, electricity demand in Ukraine in 2030 will be 50 percent

higher than in 2010. It will be mainly caused by higher electricity consumption in industry (by 55 percent)

and in services (by 100 percent)7. Such a forecast of electricity consumption was developed with account

of effects ensuing from implementation of energy saving measures. The Strategy provides for an

increase in the share of renewable energy sources in the total balance of installed capacities up to about

20 percent by 2020, which under the basic scenario is 12,1 GW (including large hydro) whereas

electricity production is 25 TWh. The basic electricity demand scenario foresees about 40 percent

decrease in the gross domestic product (GDP)8 of electricity intensity.

According to the basic scenario of the Strategy document, total heat consumption should increase to

271 million Gcal in 2030. In the basic scenario of the transport fleet development, aggregate domestic

demand for main light oil products in 2030 will be about 17,4 Mtoe (including 6.3 Mtoe of petrol, 10,1

Mtoe of diesel fuel, and 1 Mtoe of kerosene) whereas electricity consumption in transport will reach 14

TWh. To achieve such indicators, fuel consumption efficiency needs to be raised by 25-30 percent9.

7 CoM, 2014 8 https://www.irena.org/remap/IRENA_REmap_Ukraine_paper_2015.pdf, April, 2015, p.13, 3.2 9 Remap 2030: Renewable Energy Prospects for Ukraine

Figure 4.1.1.2. Targets for the National Action Plan in Renewable Energy Sphere

https://www.irena.org/remap/IRENA_REmap_Ukraine_paper_2015.pdf

52

The indicators suggested in the Strategy and energy efficiency measures envisaged therein were used

in this National Action Plan for calculations of various scenarios of energy consumption in Ukraine up to

2020.

In September 2010, the Protocol

concerning the Accession of Ukraine to

the Treaty Establishing the Energy

Community was signed; later it was

ratified by the Law of Ukraine on the

Ratification of the Protocol concerning

the Accession of Ukraine to the Treaty

Establishing the Energy Community (15

December 2010). According to the Law,

Ukraine became a full member of the

Energy Community since 1st February

2011.

In October 2012, the Ministerial Council

of the Energy Community approved Decision D/2012/04/MC-EnC on the implementation of Directive

2009/28/EC and amending Article 20 of the Energy Community Treaty, pursuant to which each

Contracting Party shall bring into force the laws, regulations and administrative provisions necessary to

comply with Directive 2009/28/EC of the European Parliament and of the Council of 23rd April 2009 on

the promotion of the use of energy from renewable sources and amending and subsequently repealing

Directives 2001/77/EC and 2003/30/EC.

The above-mentioned Directive 2009/28/EC sets mandatory national targets for renewable energy, first

of all to provide certain guarantees to investors and encourage development of novel technologies and

innovations in this field. Therewith, it contains rather strict requirements to the criteria of sustainable

production of biofuels and reduction of greenhouse gas emissions. Pursuant to Decision D/2012/04/MC-

EnC, Ukraine undertook to achieve by 2020 an 11 percent share of energy from renewable sources in

its gross final consumption of energy, which will provide a powerful stimulus for further development of

the use of renewable energy sources in Ukraine.

Membership in the Energy Community provides Ukraine opportunities for implementation in its domestic

market of greater competition, European technical standards and transparent regulation rules, and a

better investment climate. It also means deeper integration of the Ukrainian energy sector in the Member

State markets, and stronger energy security of Ukraine itself. The membership also provides a benefit

of additional opportunities for the Member States to engage international credits and technical

assistance.

Considering the commitments assumed by Ukraine in joining the Energy Community, the Government-

approved policy documents on energy (in particular, the State Target Economic Programme on Energy

Efficiency and Development of Production of Energy Carriers from Renewable Energy Sources and

Alternative Fuels for 2010-2015, and the Energy Strategy of Ukraine up to 2030), and renewable energy

development dynamics in the country, achievement of mandatory targets is expected in the following

areas.

Figure 4.1.1.3. Installed capacity for Energy Facilities Producing Electricity form Renewable Sources.

53

4.1.2. Geothermal Energy 10 Ukraine has potential for development of geothermal energy, due to the country’s thermogeological

features of relief and specificities of its geothermal resources. However, currently in Ukraine scientific,

geological prospecting and practical works focus only on geothermal resources represented by thermal

waters. According to various estimates, the economically reasonable energy resource of thermal waters

in Ukraine is up to 8,4 Mtoe per year. The country has enough geothermal deposits with a high

temperature potential (120-180°С), enabling the use of geothermal energy for electricity production.

Practical development of thermal waters in

Ukraine is carried out in the Autonomous

Republic of Crimea where 11 geothermal

circulation systems have been built,

compliant with modern technologies of

extraction of geothermal heat. All the

geothermal installations are in an

experimental industrial phase.

Large thermal water deposits were found

in Chernihiv, Poltava, Kharkiv, Luhansk

and Sumy oblasts. Hundreds of wells with

thermal water, not being currently used,

can be used for further operation as

geothermal heat extraction systems.

When calculating the possible

consumption amounts of low-temperature

geothermal resources in various regions

of Ukraine, one should consider that their

intense operation can lead to decrease in

the soil mass temperature and to the

depletion of the resources. It is necessary

to maintain a rate of extraction that would

allow operating a source of energy

resources without any harm to

environment. For each region of Ukraine,

there exists a maximum intensity of

geothermal energy extraction that can be

maintained for a long period of time.

4.1.3 Implementations Priorities Active development of renewable energy

surces ensures increase of strategy

capacities. Therewith, installed capacity

of renewable energy sources should be

enlarged within the limits technologically

admissible for maintenance of reliable

work of Ukraine’s energy system. When

increasing production of electricity based

on renewable sources, grids should be

upgraded to so-called smart grids. In

case production of electricity from

renewable sources is increased, the

system operator of Ukraine’s Unified

Energy System must ensure fulfilment of

10 NATIONAL RENEWABLE ENERGY ACTION PLAN UP TO 2020, 2014, p.6

Figure 4.1.2.1. Volume of Termal Energy Production form Renewable sources in Heating an Cooling system.

Figure 4.1.2.2. In the Heating and Cooling Sector, Implementation of the NAP RE in full is to ensure:

Figure 4.1.3.1. Implementation of the NAP RE in full will enable achivements of the following objectives by 2020

https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/3430146/Ukraine_NREAP_adopted_1Oct2014_ENG.pdf

54

the daily load curve with account of the most efficient and safest use of all types of generation. An

effective mechanism for regulation of RES capacities (particularly wind and solar plants) can be provided

by the use of regulator consumers based on heat pumps, heat accumulators, or similar technology.

To solve the problem of shortage of manoeuvring and regulating capacities, construction of hydro and

pump storage capacities, are proposed as priority projects:

completion of the first stage of Dniester PSPP and the first stage of Tashlyk PSPP by 2015;

construction of the second stage of Tashlyk PSPP and the second stage of Dniester PSPP by

2020;

continuation of construction of 1.000 MW Kaniv PSPP, and start-up of its first hydro unit in 2015;

completion of designing of 270 MW Kakhovka HPP by 2014, and its enlargement by 2020;

reconstruction and enlargement of Tereble-Rikska HPP with 30 MW capacity increase by 2020.

Separate attention should be paid to the necessity of developing and implementing effective

mechanisms for people’s investment involvement in a wider use of renewable energy sources.

Considering that the share of energy from renewable sources in gross final energy consumption in 2009

was 3,8 percent, this National Action Plan envisages achievement of the following national overall

targets:

target of energy from renewable sources in gross final consumption of energy in 2020: 11

percent;

expected total adjusted energy consumption in 2020: 78.080 ktoe;

expected amount of energy from renewable sources corresponding to the 2020 target: 8,590

ktoe.

Expected final consumption of energy

was calculated according to the Energy

Strategy of Ukraine up to 2030. For the

2015-2020 level, indicative figures of the

basic electricity development scenario

were used; for interim values of heating

and cooling, transport and energy

efficiency and forecasted data of the

basic scenario up to 2030 were used.

Full-scale realisation of provisions of this

National Action Plan will allow:

1. enhancing the level of Ukraine’s

energy independence;

2. increasing the share of energy

carriers from renewable sources in the structure of Ukraine’s total final energy consumption in

2020 to at least 11 percent;

3. optimising the structure of Ukraine’s fuel and energy balance, particularly ensuring reduction of

the use of conventional energy carriers by 35 Mtoe by 2020;

4. improving the mechanism of public management and regulation in the field of renewable energy

sources;

5. ensuring wider involvement of intellectual property entities in the process of development of

renewable energy sources;

6. raising competitiveness of the national economy;

7. improving the ecological situation in the country by reducing atmospheric emissions of harmful

substances created in combustion of organic fuel (biomass);

8. raising the development level of production of energy carriers from renewable sources up to the

European Union requirements and the Energy Charter provisions;

9. ensuring renovation of fixed assets in Ukraine’s energy sector;

10. creating jobs in the energy sector and other industries.

Figure 4.1.3.2. In order to reach the objectives of the National Action Plan for Renewable Energy for the period until 2020, the following are necessary.

55

4.2. Geothermal Potential in Europe

The possibilities in Europe from geothermal energy provided 0.2% of the total final electricity demand

(2800TWh) and 0,9% of the electricity generated by renewable sources (660TWh) in 28 European Union

countries.11 Based on the experience of European countries in implementation of geothermal power

plants, production of electricity by geothermal units in Ukraine can be ensured by means of

commissioning new capacities in the amount of 44 GWh in 2015 (total capacity 8 MW) and 120 GWh in

2020 (total capacity 20 MW).12

4.2.1. Heat Production from Geothermal sources in European Union

Use of Low and Medium Energy Applications13

Direct use of geothermal heat (excluding heat pumps) in the European Union is determined at 2.975,7

MWth in 2012 and the production at 660 ktoe. This is the assessment of experts from the European

Geothermal Congress (EGC 2013) including official estimates of national statistical authorities which

helps “EurObserv'ER”14 barometer measures the progress made by renewable energies in each sector

and in each member state of the European Union. Statistics shows a sharp increase compared to the

data published in the latest issue of "State of Renewable Energy" review, due to better assessment of

geothermal capacity used in balneology, especially in Italy.

The data published in the EGC 2013,

with the advantages of a breakdown

of figures on three main application

uses: district heating, heat utilization

in agriculture and industry, and

balneology and other purposes. On

the basis of these figures, adding

data from Slovakia, which is not

included in this study, heating

networks are the main use with

42,3% of thermal capacity, followed

by balneology (34,9%) and

agriculture and industry (22,9%).

Classification from “EurObserv'ER”

thermal capacity ranking puts Italy

on top of the direct use of heat (excluding heat pumps) at 778,7 MW, including 400 MW in balneology,

289 MW in agriculture and industry, and 80,7 MW in district heating. In second place is Hungary with

714 MW (no data on the breakdown), which is 60 MW more than in 2011. In third place is France with

a heat capacity of 365 MW, of which 295 MW is in district heating, 50 MW in balneology, and 20 MW in

agriculture and industry.

If we look at energy recovery, Italy is in first place (133,8 ktoe according to the Ministry of Economic

Development), followed by Hungary (120 ktoe) and France 94 ktoe according to the Ministry of

Environment´s Service of Observation and Statistics (SOeS).

Regarding further assessment on geothermal district heating possibilities in Europe, see chapter 2.4.2.

11 jrc_geothermal_report_final 12 Ibid. 13 NATIONAL RENEWABLE ENERGY ACTION PLAN UP TO 2020, 2014, p.6 14 European barometer http://www.eurobserv-er.org/

Fig. 4.2.1.1. Number of Geothermal District Heating systems in Europe – Potential Possibilites.

https://ec.europa.eu/jrc/sites/default/files/jrc_geothermal_report_final.pdf

https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/3430146/Ukraine_NREAP_adopted_1Oct2014_ENG.pdf

http://www.eurobserv-er.org/

56

4.3. Geothermal Conditions in Ukraine Ukraine has a number of geothermal deposits with mid-temperature potential, between 120°C and

180°C. These temperatures are sufficient for power generation. Annual technically achievable energy

potential of geothermal energy in Ukraine is equivalent to 8,4 Mtoe15 , and its use can save around 10

bcm of natural gas.

Geothermal energy (10,9 MWt) is used for heating, water and air conditioning in residential and public

buildings and facilities in urban and rural areas. Approved by the Ministry of Ecology and Natural

Resources of Ukraine, the cogeneration potential of geothermal water resources is 27,3 million m3 / day,

and their thermal power capacity at 351 million GJ/year

One of the promising directions of development of geothermal energy is to create combined energy

technology components for electricity, heat and valuable components contained in geothermal fluids.

The negative environmental impact of the operation of geothermal fields is minimal compared to the

energy sources used at present. New technologies allow the reduction of the negative impact arising

from the operation of geothermal energy to a minimum. Assessments conducted by a number of

organizations have determined that the development of geothermal district heating will not only save

use of fossil fuels, but also reduce environmental issues, which increases the quality of life for the

population.

When assessing the number of possible low-temperature geothermal resources in different regions of

Ukraine, it should be considered that intensive exploitation can lower the temperature of the resource

and rapid depletion. It is necessary to maintain sustainable utilization of geothermal energy, which would

utilise a source of energy without harming the environment. For each region of Ukraine there is a

maximum sustainable level of extraction of geothermal energy, which can be maintained for a long time.

Geothermal assessments were carried out in Zakarpattia region (near settlements Velikay Palad,

Velikay Bacta, Hust, Kosino, Beregovoe) and The Crimean Peninsula (Novoselovskyy, North

Sivashskaya, Octjabrskaya Square).

The distribution of geothermal resources in Ukraine is primarily determined by the values of heat flow

and the presence of highly permeable porous or cracks - vein reservoirs. Formation of the heat flow

values depends on geological age of the area and the activity of tectonic and magmatic processes,

accompanied by discharging of huge amounts of energy from the earth.

According to above mentioned parameters the Ukrainian territory is divided into three zones. Low

thermal flow (22-60 mW/m2), Ukrainian Crystalline Shield heat flow (22-45 mW/m2), and geothermal

gradient in most cases does not exceed 2°C/100m. The relatively young geological folding regions such

as the Crimean Mountains and the Carpathians are characterized by weak geothermal background.

Despite the fact that within these territories heat flow have higher values (60-90 mW/m2 and more),

geothermal gradients appears between 1,5-2°C/100m. This explained by high hypsometric position of

these structures, deep relief dismemberment and the absence of insulating strata.

These mountain structures (the Crimean Mountains and the Carpathians) are the source of heat for

adjacent regions, but they cannot be regarded as territory promising to form geothermal deposits.

Intermediate values of heat flow (50-70 mW/m2) correspond to the structures, which completed its

development in the Paleozoic. These include Steppe Crimea, Donetsk folded region, Subcarpathian

region.

15 REmap 2030: Renewable Energy Prospects for Ukraine, Chapter 6, p 21

57

Figure 4.3.1. Distribution of Geothermal Energy Potential in Ukraine

Central part of the Dnieper-Donets basin (Chernihiv, Poltava, Kharkiv, Dnipropetrovsk, Sumy

administrative regions) are characterized by relatively favorable geothermal conditions within which heat

flow varies from 70-90 mW/m2.

The highest heat flows (above 80 mW/m2) and geothermal gradients (7-8,4°C/100m) are observed in

Zakarpattya depression, in the central part of the Crimean peninsula and the Black Sea Coast (Odessa

and Kherson regions). The Institute of Geophysics (National Academy of Sciences of Ukraine - NASU)

made the map of the rock temperature at the depths of 3 to 10 km for the Ukrainian territory. Maps

contain information about forecasted temperatures that were calculated for the actual measured values

of geothermal heat flow.

Based on the analysis and extrapolation of these maps we made the map of forecast temperature rocks

at depth of 5 km. According to this, the rock temperature values at a depth of 5 km in Ukraine ranges

from 80 to 280°C. Low temperatures are prevalent on the Ukrainian Crystalline Shield and its slopes

and in the northern part of the Volyno-Podolsk plate. The highest temperatures are in the Zakarpattia

depression and along the Black Sea Coast. The most widely represented temperatures range from 90

to 130°C (in the Ukrainian Crystalline Shield and its slopes, the Volyn-Podolsk plate, the Dnieper-Donets

depression, on the slope of the Voronezh array) and from 130 to 190°C (in the Carpathians, the Crimea,

the Black Sea-Azov shelf, in the Donbass).

4.3.1. Overview of Geothermal Potential Resources in Ukraine

The first estimation of geothermal resources in Ukraine was implemented in 1979 by the Central

Thematic Expedition of the Geology Ministry (main author E.E.Sobolewskij). At the present time results

of these calculations are officially accepted and approved by the State Commission of Ukraine on

Mineral Resources reserves. It was estimated that the predictive reserves of thermal waters, i.e. their

maximum amount that can be extracted when production wells place evenly across the investigated

area. Evaluation was performed by hydrodynamic method.

58

Total projected resources of thermal waters in Ukraine are 27,3 million m3/day, of which 23 thousands

m3/day (free flowing well), 137 thousands m3/day (pumping extraction),

27,2 million m3/day (back pressure).

Defined resources are estimated to be 1.970 million GJ/year of which 2.5 million GJ/year (free flowing

well), 8,93 million GJ/year (pumping extraction) and 1.895 million GJ/year (back pressure). Estimation

was performed only for the Zakarpattia and Black Sea regions (the Crimean peninsula and Kherson

southern region) on the results of drilling, which was carried out at that time.

The Production Geological Enterprise "Krymgeologiya" (heat S.M.Taletskiy) determined the prospects

of extracting thermal waters that located within work of this geological association in 1991. They made

regional assessment of deposit operational stocks of thermal water area, namely Crimea Plain, northern

and western Black Sea regions and the Kerch Peninsula. The total projected operating reserves are on

amount of 34 million m3/day or 1.635 million GJ/year.

The Institute of Geological Sciences of NASU in cooperation with the Ministry of Ecology and Natural

Resources of Ukraine in 2001 issued "Geology and mineral resources of Ukraine

(scale 1: 5.000.000), which has a section dedicated to geothermal resources.

According to IGS NASU, projected resources of geothermal energy in Ukraine to a depth of 3 km

constitute: 3,3·1022 J or 1,12 1012 toe and to a depth of 10 km: 6,9·1022 J or 2,38·1012 toe respectively.

According to geological-structural features defined areas of high use of geothermal resources, these

include: Zakarpattia depression (0,32·1022 J; 1,11·1012 toe), Precarpathian deflection (0,16·1022 J;

0,56·1012 toe), Plicate Donbass (0,3·1022 J; 1,02·1012 toe) and Crimea (0,74·1022 J; 2,48·1012 toe).

Institute of Geophysics (IGPH) at NASU in 2004 year issued "Geothermal Atlas of Ukraine", in which

estimates were made of geothermal resources to the depth of 3, 4,5 and 6 km. Calculations were based

on the average geothermal gradient and thermal properties of rocks, which were defined by the actual

data and specific to certain calculation areas.

Note that defined IGPH NASU resources reflecting actual petrothermal energy sources, while thermal

water resource (hydrothermal) in this assessment are not included. The total value of geothermal

resources of Ukraine in the depth at interval 5,5 - 6 km according to calculations of IGPH NASU was

0,56 trillion toe.

The best perspective of geothermal resources is in the Zakarpattya region. In 2006 an evaluation was

done on the operational reserves of geothermal waters of region as whole, and some geothermal fields.

Seven fields operating reserves of thermal waters (Uzhhorod, Berehovo, Kosinski, Velyko-Baktynske,

Velyatynske, Velyko-Paladske, Zaluzhske) were approved in the State Commission of Ukraine on

Mineral Resources reserves.

Institute of Renewable Energy at National Academy of Sciences in 2013 published "Atlas of energy

potential of renewable energy in Ukraine." The Atlas presents data about geothermal potential

distribution of individual administrative regions of Ukraine. It estimates the total annual technically

attainable geothermal potential to equal 8,4 million toe or 98,6 TWh·h (see Table 4.3.1.1). The energy

potential included hydrothermal resources (thermal waters), petrothermal resources and resources of

upper layers of the earth. Note that hydrothermal resources were in the following areas: Crimea,

Zakarpattia, Ivano-Frankivsk, Poltava, Chernihiv, Chernivtsi, Zaporizhia, Donetsk, Dnipropetrovsk,

Odessa, Kharkiv and Kherson regions.

59

Table 4.3.1.1. Energy Potential of Geothermal Energy in Ukraine

№ Areas

Technically achievable geothermal heat potential

№ Areas

Technically achievable geothermal heat potential

thousand TOE per

year

thousand MWh per

year

thousand TOE per

year

thousand MWh per

year

1 Crimea 775 9.011 14 Lviv 554 6.439

2 Cherkasy 175 2.035 15 Mykolaiv 203 2.361

3 Chernigiv 326 3.793 16 Odessa 2.845 3.313

4 Chernivtsi 49 570 17 Poltava 614 7.139

5 Dnipropetrovsk 266 3.093 18 Rivne 518 6.024

6 Donetsk 224 2.605 19 Sumy 600 6.976

7 Ivano-Frankivsk 123 1.425 20 Ternopil 119 1.392

8 Kharkiv 632 7.350 21 Vinnytsa 217 2.523

9 Kherson 606 7.049 22 Volyn 168 1.954

10 Khmelnitsky 175 2.035 23 Zakarpattia 596 6.919

11 Kirovograd 203 2.361 24 Zaporizhya 252 2.930

12 Kyiv 245 2.849 25 Zhitomyr 252 2.930

13 Lugansk 224 2.605 TOTAL 8.400 97.681

* Kyiv represents both Kyiv city and Kyiv oblast. Crimea represents both Sevastopol city and AR Crimea. Other areas represent oblasts.

4.3.2. Development Forecast of Geothermal Capacities in Ukraine

In this part we represent materials that are going to be included in the "Roadmap of development

geothermal energy and energy of environment for period up to 2020" that contains the following

characteristics: installed capacity, annual production of electric and thermal energy, annual conventional

fuel savings both in tones of equivalent oil and natural gas volumes.

Table 4.3.2.1. Tasks and Measures of the Implementation of the Roadmap of Geothermal Power and Energy of Environment until 2020

Name of task Name of indicators Indicator value

Total Year

2016 2017 2018 2019 2020

1. Using geothermal energy considering of associated gas

1. Energy indicators

1.1. Installed capacity, MW 152,0 8,0 16,0 32,0 32,0 64,0

1.2. Annual electricity production, million kWh/year

2296,0 56,0 168,0 392,0 616,0 1064,0

1.3. Annual electricity production in oil equivalent, ths TOE

197,5 4,8 14,5 33,7 53,0 91,5

1.4. Annual savings of conditional fuel, Mtoe/year

8,2 0,2 0,6 1,4 2,2 3,8

1.5. Substitution volumes of natural gas, mln. m³

9,348 0,228 0,684 1,596 2,508 4,332

2. Use of geothermal heat



60

2.2. Annual production of heat ths. Gcal

1420 140 210 300 350 420

2.3. Annual heat production in oil equivalent, ths. TOE

142,0 14,0 21,0 30,0 35,0 42,0

2.4. Annual savings of conditional fuel, mln. TOE/year

0,2 0,02 0,03 0,04 0,05 0,06


0,232 0,023 0,035 0,046 0,058 0,07

3. Use of geothermal energy (excluding low temperature geothermal heat for use in heat pumps)



3.2. Annual production of electricity, ths. Gcal

1420 140 210 300 350 420

3.3. Annual heat production in oil equivalent, ths. TOE

142,0 14,0 21,0 30,0 35,0 42,0

3.4. Annual savings of conditional fuel, mln. TOE/year

0,2 0,02 0,03 0,04 0,05 0,06


0,232 0,023 0,035 0,046 0,058 0,07

Name of task Name of indicators Indicator value

Total Year

2016 2017 2018 2019 2020

4. Energy from heat pumps, including: A) air; B) geothermal; C) hydrothermal



4.2. Annual production of electricity, ths. Gcal, including:

1205,0 103,0 172,0 241,0 310,0 379,0

А 602,5 51,5 86,0 120,5 155,0 189,5

B 482,0 41,2 68,8 96,4 124,0 151,6

C 120,5 10,3 17,2 24,1 31,0 37,9

4.3. Annual heat production in oil equivalent, ths. TOE, including:

120,5 10,3 17,2 24,1 31,0 37,9

А 60,2 5,15 8,6 12,05 15,5 18,9

B 48,27 4,15 6,88 9,64 12,4 15,2

C 12,03 1,0 1,72 2,41 3,1 3,8

4.4. Annual savings of conditional fuel, Mtoe/year, including:

0,172 0,015 0,025 0,034 0,044 0,054

A 0,086 0,0075 0,0125 0,017 0,022 0,027

B 0,0688 0,006 0,01 0,0136 0,0176 0,0216

C 0,0172 0,0015 0,0025 0,0034 0,0044 0,0054

4.5. Substitution volumes of natural gas, mln. m3, including:

0,197 0,017 0,03 0,04 0,05 0,06

А 0,0985 0,0085 0,015 0,02 0,025 0,03

B 0,0788 0,0068 0,012 0,016 0,02 0,024

C 0,0197 0,0017 0,003 0,004 0,005 0,006

61

4.3.3. Assessment Results of Potential Geothermal Resources in Ukraine For the purpose of energy potential of geothermal deposits at Ukraine, a database was created that

includes more than 400 actual specifications on boreholes drilled in Poltava, Ivano-Frankivsk, Lviv,

Chernivtsi, Kherson, Zakarpattia, Chernihiv, Kharkiv, Dnipropetrovsk and Odessa regions and the

Autonomous Republic of Crimea. Actual data was obtained from reports, archives and printed sources.

Figure 4.3.3.1. Map of Placement Geothermal Objects in Ukraine

Figure 4.3.3.2. Geothermal Objects with Thermal Water Temperature Exceeding 80°C

62

The database included information about depth and thickness of productive horizon, bed temperature

and static pressure, debit of borehole at corresponding decrease of level, groundwater mineralization

and organization name that received permission to use this deposit with permit number.

Actual data covering deposit is uneven, some deposits are presented by dozens of boreholes and other

by a single borehole. Baseline data was analyzed, summarized, and average values were identified for

each deposit. Averaged values were determined for 102 deposits.

Calculation covers 47% from total number of gas and gas condensate deposits. Figure 4.3.3.1 provides

a map of geothermal objects in Ukraine that were entered to the database. Figure 4.3.3.2 shows those

geothermal objects in which thermal water temperature exceeds 80 °C. Maximum temperature is

126 °C.

4.3.4. Priority Development of Geothermal Resources in Ukraine

Priority objects are defined on the grounds of analysis of exploratory data, hydrogeological parameters

and assessment of their operational characteristics. Table 4.3.4.1. presents the most studied

geothermal objects.

Table 4.3.4.1. Priority Geothermal Objects

№ Name of geothermal

object Location Bed

temperature ° C Depth of productive

horizon, m

1 Russkie Komarovtsy Zakarpattia area 89 1350

2 Henichesk Kherson area 89 2620-2651

3 Monastyryshche Chernigiv area 96-98 3374-3384

4 Spivakovskaya Kharkov area 98 2780

5 Gadyach Poltav area 119-120 4950

6 Mostyska Lviv area 90-95 3160

7 Hlinsko-Rozbyshevskoe Poltav area 127 5060

The presented data can be used as priority objects after tests conducted and definition of technological

parameters, as well as estimates of reserves of geothermal deposits. For further studies it is

recommended to focus on the Zakarpattia region, Lviv due to the West location and availability of already

existing research.

63

4.4. The use of Geothermal and Mineral waters in the Area of Ukrainian

Carpathians16

Following chapter 4.4 presents the summary of use of the geothermal waters in the Ukrainian

Carpathians, which is based on the analysis from „Geothermal Atlas of the Eastern Carpathians” 17

4.4.1. The use of Geothermal Waters in Carpathian Ukraine

Figure 4.4.1. The use of Geothermal Waters in Carpathian Ukraine – Current Status of Geothermal Energy Development in Carpathian Ukraine

Geothermal resources in Ukraine are represented primarily by thermal waters and heat of hot dry rocks.

In addition to promising for use in industrial scale, geothermal resources include heated subterranean

water resources, which are derived from operating wells of oil and gas fields. The reserves of thermal

and superheated waters are formed and circulate at depths exceeding 1.000 m within the boundaries

of geosynclinal type artesian basins. Ukraine has four basins containing industrially feasible reserves of

thermal and superheated waters: Transcarpathian (or Zakarpattia), Ciscarpathian, Dnieper-Donets and

Black Sea (Prychornomorski) basins.

According to official data of the Ministry of Ecology and Natural Resources, reserves of thermal waters

are 27,3-106 m3/day. Technical potential of geothermal resources is estimated to be 97,7 TWh/year. In

2000 geothermal energy utilisation amounted to 0,1 TWh. It is expected that total capacity of constructed

geothermal district heating systems will be 9.000 MWth and that of geothermal power plants will be 400

MWe in 2030.

That will ensure a production of 42 TWh, and in 2050 the production will come to 57 TWh (Ministry of

Fuel and Energy of Ukraine, 2002). However, such degree of geothermal energy use seems to be too

optimistic. Geothermal energy is renewable only on a geological scale of time. As stated in (Geletukha

et al., 2003), the promising under geological conditions of Ukraine geo-circulating systems will exhaust

their aquifer resource over 20-30 years. It is assumed that the amount of utilized geothermal energy will

reach 8 TWh/year in 2030 and 14 TWh/year in 2050 which is equivalent to current use of geothermal

energy in the whole Europe.

16 Gordienko I., Gordienko V, Zavgorodnyaya O., Geothermal Resources of Ukraine, Proceedings World

Geothermal Congress 2005 17 Gorecki W., Hajto M., Geothermal atlas of the Eastern Carpathians, AGH, Krakow 2013

http://www.geothermal-energy.org/pdf/IGAstandard/WGC/2005/2619.pdf

64

It should be pointed out that within the boundaries of these basins there are localities containing waters

superheated to more than 170°C at the depths exceeding 3.500 m. Results of the exploratory wells

testing have shown that the pioneering work on superheated waters extraction can be organized on

localities in Zakarpattia Oblast (Zaluzhzhia), Kharkiv Oblast and AR Crimea (Tarkhankut). Total dry-

rocks-accumulated heat potential reserves are estimated to be around 322,7-1.012 GJ, according to

Zabarny (Zabarny, 2003). Presently, however, industrial utilization of the geothermal reserves in full

measure is rather problematic due to the comparatively low (up to 100°C) temperature of the major part

of the thermal waters and dry rocks. Thus, their use is limited mainly to heating purposes and is possible

within the limits of cities and settlements.

4.4.2. The use of Geothermal Waters for Heating Purposes in Ukraine18

Practical harnessing of geothermal resources in Ukraine have been in progress starting from early 90s.

Particular emphasis in the development of Ukrainian geothermal power engineering was laid on the

development of geothermal heat-supply systems as well as on the construction of cogenerating units

based on geothermal fields with gas-containing thermal waters.

Table 4.4.2.1 Active Geothermal objects in Ukraine

Geothermal

Energy use

Geothermal object

Years of

introductio

n in

operation

Thermal

(electric)

capacity

(MWt)

Annual

economy

of fuel

(t c.f.)1

3 in

Ciscarpa-

thia

in Western

Ukrine

9 geothermal

plants (list

from Khvorov

et al., 2005)

6 in Scythian

platform

of which 5 on

Crimea, 1 in

Khersonskay

a Oblast

in 2003:

10,0 MW

heat

installed

33 GWh heat

production

1. System of the geothermal heat supply of the Beregovsk´s

sport center. Beregovskiy area, Zakarpatskaya region

1978

2,1

1.215

2. System of the geothermal heat supply of the sanatorium

“Kysyno”. Beregovskiy area, Zakarpatskaya region.

1988

1,2

860

3. System of the geothermal heat supply of the sanitary

complex “Latorytza” Mukachevskiy area Zakarpatskaya

region.

1985

0,2

210

4. System of the geothermal heat supply of the settlement

Yantarnoe. Krasnogvardeyskiy region, AR Crimea.

1991

4,6

2.700

5. System of the power supply of the objects budgetary

sphere in the settlement changer. Khersonskaya region.

1998

1,0 (0,1)

900

6. System of the geothermal heat supply of children’s

establishments and of the social culeture household

spheres of settlement Medvedevka, Dzhankojsky area,

AR Crimea.

2002

0,8 (0,06)

650

7. System of the geothermal heat supply of the objects in the

settlement Zemovoe. Sakskiy area, AR$ Crimea.

1997

0,4

355

8. System of the geothermal heat supply of the objects of

municipal economy of settlements Piatykhatky.

Krasnogvardeyskiy region, AR Crimea.

1996

0,3

300

9. System of the geothermal heat supply of the objects in the

settlements Nizinnoe. Sakskiy area, AR Crimea.

1998

0,3

300

TOTAL 10,9 (0,17) 7.470

(Zabarny 2003).

The abovementioned activity is financed within the framework of the State R&D Program

„Environmentally Friendly Geothermal Power Engineering of Ukraine” which is focused on the

development of scientific and technical foundation of and material basis for the introduction of

geothermal energy in the national fuel and energy complex. Currently, the State R&D Program

„Environmentally-Friendly Geothermal Power Engineering of Ukraine” is being implemented with the

financial support of the State. The Administration of Crimea, as well as those of Zakarpattia and L’viv

Oblast earmarked funds for building new geothermal units in addition to already existing installations

listed in Table 4.4.2.1.

18 Gorecki W., Hajto M., Geothermal atlas of the Eastern Carpathians, AGH, Krakow 2013, p. 718

65

As estimated in the EBRD Country profile for Ukraine (EBRD, 2009), the state’s considerable

geothermal resources can be used mainly for heat supply. There are also prospects for binary

geothermal power plant creation based on existing wells at abandoned oil and gas fields. Separate wells

are used in the Transcarpathian region to supply thermal water in swimming pools or as an additional

source of heat for the local boiler houses. The total thermal installed capacity of Ukraine of 10,9 MWth

generates 119 TJ of energy per year. Currently, the geothermal energy is supplied to nine different

systems. Two of the systems are associated with power plant co-generation producing 0,16 MWe and

1,8 MWe.

Currently there is no updated data available, disclosing actual volumes of direct use of geothermal

energy in Ukraine. According to Antics and Sanner (Antics and Sanner, 2007) and their assessment of

direct uses in Europe 2007 update (after Lund, 2005, Rybach, 2006) and International Geothermal

Association (IGA) data, taken from the paper by Lund, Freeston and Boyd (Lund et al., 2010), the direct-

uses in the country are for individual space heating (3,5 MWt and 36,3 TJ/year); and district heating

(10,9 MWt and 118,8 TJ/year) as presented in Table 4.4.2.2.

Total thermal installed capacity in MW t 10,9

Direct use in TJ / year 118,8

Direct use in GWh / year 33,0

Capacity factor 0,35

4.4.3. The use of Geothermal Waters in Ukraine - Electricity Production19

Total thermal and electric capacity of the operational geothermal energy units in Ukraine today amounts

to 10,9 MW and 0,17 MW respectively. Exploitation of the existing units listed in Table 4.4.2.1, results

in saving 7.470 tons of conventional fuel per year.

Two of the systems are associated with power plant co-generation producing 0,16 MWe and 1,8 MWe.

According to estimation results, presented by Zabarny (2003a) in the study of power-generating potential

of the geothermal resources of Ukraine (Zabarny, 2003b), the technically accessible power generation

potential of Ukraine is estimated in 33,12·106 MWh/year for thermal waters of artesian basins with the

temperature of up to 100°C; for dry rocks – in 18,02·106 MWh/year. The technically accessible power

generation potential of superheated geothermal waters with the temperature exceeding 150°C amounts

to 2,36·106 MWh/year.

Total operational reserves of geothermal waters in scale of Ukraine are estimated in 3.093.103 m3/day,

superheated waters – 1.008.103 m3/day. On condition that these predicted reserves could be

incorporated into the fuel-and-energy complex of Ukraine, it will be possible to create 12.390 MW of

thermal and 414 MW of electric capacities, annually save 7,78-106 tons of conventional fuel, cut down

the use of fossil fuel in energy sector by 8,35%, reduce annual CO2 emissions by 17.106 tons. To

harness the above-mentioned potential, it is necessary to create heat generating units with total capacity

of 12.390 MW and electricity generating units with total capacity of 414 MW. Partial estimates of the

potential geothermal power-generation reserves for western regions of Ukraine are given in table

4.4.3.1.

19 Gorecki W., Hajto M., Geothermal atlas of the Eastern Carpathians, AGH, Krakow 2013, p. 718

Table 4.4.2.2. Direct uses of Geothermal Energy in Ukraine

66

Region

Operational reserves

Geothermal/

superheated

waters

Dry rocks,

thermal

capacity

Energy potential

thermal/electrical

Annual saving in

fuel

(10m3/day) MW 103MWh/year 106 t c.f.

Zakarpacki

(Carpathian)

264 / 371 - 2.77 / 1.0 0.84

Iwanufrankowski

(Ivano- Frankvisk)

181 - 1.89 0.24

Lwowski (Lviv) 197 - 2.07 0.27

Tarnopolski - 77 0.32 0.04

Czerniowiecki - 155 0.64 0.08

Total 642 / 371 232 7.69 / 1.01 1.47

It should be marked, that the predicted usable reserves of thermal and superheated waters of the

artesian basins and the amount of heat stored in dry rocks have been evaluated down to 5.000 m depth,

as that is attainable by standard-made drilling equipment and reinjection of the geothermal fluid.

4.4.4. Prospective Areas of use of Geothermal Energy in Carpathian Ukraine20

In accordance with the National report of Ministry of Environment and Natural Resources of Ukraine

(Bystriakova and Stashuk, 2011), hydrothermal resources in Ukraine are concentrated mainly in

Transcarpathian inner trough and in the plains of Crimea. The territory of the Dnieper- Donets and Black

Sea basins also have elevated temperature gradients and with appropriate study can be considered as

promising for geothermal energy.

In the 1980s Sobolevsky E.E. (CTE Mingeo URSR1) performed regional assessment of predictive

thermal groundwater resources, which was based on the following criteria: lower limit of reservoir

temperatures of groundwater – 40-45°C; background performance of individual wells – at least 2-3 dm3/s

(170-250 m3/day) mineralization of thermal waters – should not exceed 200 g/dm3. Evaluation results of

expected thermal water resources are listed in (Table 4.3.2.1.).

According to different studies of prospective geothermal resources and current development state of

geothermal energy in Ukraine, conducted by both domestic and foreign experts, it is decided to focus

on three regions suitable for geothermal exploitation.

Stoyanov and Taylor (Stoyanov, Taylor, 1996), followed by Battocletti (Battocletti, 2001) mark out the

Crimea peninsula (including Sivash, Alminski and Indolski artesian basins), the Ciscarpathia (incl. the

Ciscarpathian depression and the Vigorlat-Gutynski volcanic range) and the Kharkiv-Poltava region in

the Dnieper-Donets basin as the most prospective geothermic regions of Ukraine; Zabarny, Shurchkov

(Shurchkov et al., 2003; Zabarny, 2003b), as well as other authors (Meliychuk et al., 2010; Gordienko

et al., 2005; Rudko, 2010) and as stated in National report of Ministry of Environment and Natural

Resources of Ukraine (Bystriakova, Stashuk, 2011), locate the most perspective region for geothermal

exploration in Ukrainian Carpathians (Zakarpattia) and the nearby territories – partly in Lviv and Ivano-

Frankivsk regions.

According to Gordienko (Gordienko et al., 2005; Gordienko, 2011), the western area of Ukraine has total

reserves (as sum of C3) value about 0,2-1.012 toe. Network density of geothermal research in parts of

the Carpathians and the Cis-Carpathians is currently maximal for Ukraine. Especially a lot of deep heat

20 Gorecki W., Hajto M., Geothermal atlas of the Eastern Carpathians, AGH, Krakow 2013, p718

Table 4.4.3.1. Predicted usable Reserves of Geothermal Energy and Energy Potential thereof as estimated for Western Regions of Ukraine.

67

flow values of the Earth is set in the Transcarpathian and Carpathian basins. However, there often is

not enough information to identify local anomalies, which have, in particular, the importance for the

investigation of the connection of oil and gas with the deep processes.21

4.4.5 Geothermal Projects in Carpathians22

The Zakarpatsky area is an important fuel and energy region of the Ukraine. About 200 petroleum and

gas wells have been drilled there. However, some of these wells are no longer profitable for such use.

These wells provide thermal water and could be used economically for district heating.

The temperature of the thermal water is usually within the limits of 45-120°C, and the depth of the

productive aquifers ranges from 1.000 to 3.000 m. Thus, the already existing wells may be used for the

purpose of providing the heat supply for this region. The Beregovsky field is also ranked among several

prospective geothermal areas of the Ukraine (Zabarny et al., 1997)23.

The geothermal resources in Eastern Europe contains information on 28 specific geothermal sites or

projects in Ukraine with the highest enthalpy geothermal resource identified in Zakarpattia in Zaluzhzhia

(Zaluzska 3 deep well, 4.050 m depth) with a temperature of 210°C.

The average temperature of all sites in Ukraine is 59,8°C. Thirteen sites have a temperature of 100°C

or more. There is a number of sites with wells located in the Carpathians area, which are characterized

by different development status, temperature (°C), and electric power generation potential.

The site in Berehove (Zakarpattia region) is currently in a stage of feasibility study. The temperature of

discovered thermal water resources reaches 70°C. In 1997, the Danish company Houe and Olsen,

assessed the resource and project through the DANCEE program.

About 15 wells have been drilled for various purposes. In all the boreholes, well-logging, well tests, and

geochemical sampling of thermal water have been carried out. Analysis of well test data indicates that

the average transmissivity of the Berehivsky reservoir is about 0,5-10-5 m3/Pa/s. A lumped parameter

model using the LUMPFIT computer program was used to simulate the Berehivsky geothermal area

and predict the reservoir response to three constant production rate cases over the next 10 years

(Barylo, 2000). The location of the wells has been presented in the Figure 4.4.5.1.

The project in Berehove comprises reconstruction of existing wells and drilling of new wells (1 doublet).

The district heating network requires renovation and extension. The current fuel is natural gas. The total

heat demand is 73.300 MWh, of which geothermal energy is expected to cover 50 percent. The

geothermal resource will be used to heat three five-story buildings, replacing a gas-fired boiler. Total

project cost is USD 30 million.

It is estimated that the energy potential of the Berehivsky geothermal area is 1,23c1017 J and the

possible direct use potential (e.g. space heating) produced for a 25-year period is estimated to be about

15 MWt. The aquifer depth is 900-1.500 m (Dolinsky et al., 2001).

21 1 Central Thematic Expedition of Ministry of Geology of the Ukrainian SSR 2 t c.f. (tons of conditional fuel) = t s.f. (tons of standard fuel)– the unit of standard fuel used in the former countries of USSR. An arbitrary unit used in calculations of organic fuels to compare efficiencies of different types of fuel and to make general evaluations. One kilogram of fuel with a heat of combustion of 7.000 Calories (kcal) per kg (293.076 MJ/kg). 1 t s.f. ≈ 0,7 toe (tons of oil equivalent). 22 Gorecki W., Hajto M., Geothermal atlas of the Eastern Carpathians, AGH, Krakow 2013 23 Barylo A., Assessment of the energy potential of the Beregovsky geothermal system, Ukraine, UNU, Report 2000/3

68

Some of the drillings in the region of the

town of Irshava (Zakarpattia region)

also demonstrated significant free-

flowing hot water. At that site, an

anticline crypto-diapir fold is to be

found under the Neogene mantel. Most

promising are the waters in Cretaceous

sedimentary environments. Such

waters and environments have been

discovered by the drillings at Irshava 2,

located in the area of the Danilovo –

Nevitskovo abyssal fracture. The

water-bearing rock is of fissured type,

probably due to the fracture zone.

Mineralization is about 189 g/dm3

(Stoyanov, Taylor, 1996).

A well drilled near the city of Mostyska

(Lviv region) indicates the availability of

a prospective geothermal resource,

revealing 128°C at a depth of 1.950 m.

As a result of studies carried out in

Tereblia (Zakarpattia region) in 1980s,

the site was determined to be of the

second highest priority for commercial

utilization.

Well Tereblia 6, drilled in the central

part of the syncline, reached

pressurized water-bearing horizon in

the interval between 2.009 and 2.360

m. The well is a gushing type, with flow-

rates between 500 and 900 m3/day.

The pressure at the well head was measured at 1,2 atm. The pressure at 1.767 m was 217 atm. Water

mineralization is in the range of 138 g/dm3. Water temperature measured at 2.350 m was 105°C, and at

the wellhead was 95°C (Tereblia 6).

The hydro-geothermal complex at the Tereblia site is of significant interest. The formation is located in

the central part of the Solotvyno depression. The maximum thickness of the water bearing tuffs is 700m.

The dip angle of the thrust fault planes of the Cretaceous blocks of the base is between 5-20 degrees.

The water bearing suites are enveloped between these practically water-impermeable blocks and

talabor rock which is also water impermeable. This creates very favourable conditions for the

accumulation of geothermal waters. The size of the Tereblia water-bearing complex is 15 x 5 km.

Assuming, the thickness of the water bearing rock is 300 m and the porosity of the rock is 10%, the

accumulated reserves are 3 km3. With a temperature of over 100°C, the accumulated thermal energy is

1,5·1018 J (Stoyanov, Taylor, 1996).

The Uzhgorod site is characterized, as is the territory of the entire depression, by a block structure of

pre-Neogene folding base. Multi-directional tectonic movements of the blocks have resulted in

significant variations in the depth of the base. The highest part is the Uzhgorod transversal uplift. The

roof of the base is located at a depth of less than 1.000 m. Uneven, but sometimes up to hundreds of

meters thick, the sedimentary mantle of lower Miocene is a significant structural element of the

hydrothermal environment of this site.

Figure 4.4.5.1. Locations of Wells and main Geological Structures Beregovsky Geothermal Area 1

69

The most productive area proved to be the sandstone water bearing horizon of the adjacent Rusko-

Komarivsky uplift. The name of the drill-site is Uzhgorod 2T. The mineralization of the water is 16-30

g/dm3. The formation pressure at 1.700 m is 167,9 atm and at 1.300 m, 134,64 atm. A maximum water

temperature of 108°C was measured at a depth of 1.940 m. The discovered hydro-geothermal resources

have been determined to have no commercial value and are currently in conservation. The geological

and hydro-geological investigation carried out at the site is however considered insufficient to a large

extent (Stoyanov, Taylor, 1996).

4.4.6. Prospective Areas of use of Geothermal Energy in Zakarpattia Region24

As mentioned above, the region of Transcarpathia is the most prospective area for geothermal

exploration. According to Taylor and Stoyanov (Stoyanov, Taylor, 1996), the investigation of Cis-

Carpathian depression proved that from a hydro-geological point of view, the area is a first class,

pressurized water-bearing basin. It is sub-divided into two second class water-bearing basins: the Chop-

Mukachevo and Solotvyno pressurized water-bearing basins. Mineralization of the geothermal waters

of the Chop-Mukachevo basin vary in quantity and kind from 10 g/dm3 to 300-350 g/dm3.

Significant flow-rates of waters from

Paleozoic, Early Miocene and Sarmat

deposits have been observed during

prospective drillings in the area of the

town of Uzgorod, situated in the north-

western part of the Cis-Carpathian

depression, close to the borders with

Romania and the Republic of Slovakia.

The most productive area proved to be

the sandstone water-bearing horizon of

the adjacent Rusko-Komarivsky uplift

(drill-site Uzhgorod 2T) (Table 4.3.3.2.).

Some of the drillings in the region of the

town of Irshava also demonstrated significant free-flowing hot water, most promising are the waters in

Cretaceous sedimentary environments (Irshava 2).

Among the different sites of the Chop-

Mukachevo and Solotvyno pressurized

water-bearing basins, sites in Uzhgorod,

Mukachevo, Irshava, Vynohradiv and

Berehove were deemed promising for

geologic prospecting for thermal waters.

Artesian wells, located in the Zakarpattia

basin in the Transcarpathian trough

produce 60-90°C thermal waters from

reservoirs located between 1.000-2.500 m

depth (Berehove, Uzhgorod, Kosyno,

Tereblia). For the assessment of

geothermal potential of the Zakarpattia

region, the Carpathian geological

expedition had drilled over 20 exploratory wells in different parts of the territory.

The main (and best) option to use geothermal resources of the region is to meet the needs in heating

and hot water supply of agricultural and industrial facilities and residential settlements, located directly

near the fields. However, given that most consumers are far from energy sources (wells fields), heat

24 Gorecki W., Hajto M., Geothermal atlas of the Eastern Carpathians, AGH, Krakow 2013

Figure 4.4.6.1. Thermal basins in Berehove (Zakapattia)

Figure 4.4.6.2. Thermal basins in Kosyno

(Zakarpattia)

70

losses during transporting will be inevitable. Exploitation of most geothermal fields is possible only with

the use of coercive methods to extract the thermal waters. In this respect, there is a problem of relevant

supply with deep pumps of high quality and performance rate, to supply corrosion-aggressive heat

medium with temperature of 60°C. On the territory of Zakarpattia region are located seven most

prospective deposits of thermal water with a total energy potential of more than 140 MW (Table 4.3.3.1.).

Currently the thermal waters of Berehove, Kosyno and Velyatyno fields are used for recreational

purposes in outdoor thermal pools and sanatoriums (Fig. 4.4.6.1, Fig. 4.4.6.2).

4.4.7. Prospective Areas of use of Geothermal Energy in L’viv Region25

The Lviv region of Ukraine is often listed among the prospective regions for geothermal exploration.

However, there is a lack of information about the current and former researches and estimation of

geothermal resources of the territory.

According to data, presented by „Zakhidukrgeologia”, during the search for oil and gas within the L’viv

region large deposits of thermal waters were discovered. A result of studies that were carried out at a

depth of 3.000 m, was discovery of isotherm with 120°С and identification of 5-6 wells with high

temperature performance. Thermal water deposits for balneological purposes were identified in two

locations: near L’viv and Briukhovychi (objects are now conserved). During 1986-89 two wells were

drilled near Briukhovychi, to depths of 1.500 and 1.400 m with low-temperature mineral iodo-bromine

waters (34-37°С), suitable for therapeutic purposes.

However, the application of thermal waters for curative purposes is still not as popular as in Zakarpattia.

The reason for this is a different microclimate, absence of natural landscape, mineral and thermal water

complex in L’viv region, so a profitable use of thermal waters is not to be expected.

According to State Department of

Environmental Protection in L’viv

Region, 2010, a unique field of

geothermal waters is found in

Mostyska and Yavoriv districts, which

extends to Przemyśl (Poland). Waters

are lying at a depth of 3.000 m and

have a temperature of 95-130°С.

The list of the investment attractive

objects in context of an overall strategy

for economic development of Mostyska

district, includes two wells with thermal

water. In accordance with the budget

documentation, developed together

with podkarpackie Voivodship (Poland), it is planned to establish and launch a geothermal heating

system for cities of Mostyska and Przemyśl, of total capacity of 12,57 MW and 87 MW respectively.

Installation of heat-generating units is planned, operation of which will save traditional fuels and reduce

emissions of carbon dioxide into the atmosphere.

In 2004, on the initiative of „Lvivoblenergo” at the IV Investment Fair in L’viv, an agreement was signed

to attract UAH 300.000 to the geothermal investigation of the well Mostyska 2.

According to Dobush (Dobush, 2009), iodine-bromine waters were explored and exposed by groups of

wells for oil and gas areas at Volia-Blazhivska and Rudky in Sambir district, Sudova Vyshnia in Mostyska

25 Gorecki W., Hajto M., Geothermal atlas of the Eastern Carpathians, AGH, Krakow 2013

Figure 4.4.7.1. Exploratory borehole “Pn 6” in Pyniany

71

district, Kokhanivka in Javorivsky district, Urizh in Drohobych district and others. Mineral water of this

group is high-thermal, for gas composition belonging to methane.

Around the town of Zhovkva were found pressured hydrosulfuric waters with 39°С on surface. It is

reasonable to further explore and conduct research on the use of these waters. A private owner has put

on sale a land property near Zhovkva, on which territory a geothermal well is located. The official field

researches with injection-pumping and chemical analysis were held in 1989. The well was drilled during

1989-90 with a purpose to find and study groundwater reservoirs. Well depth reached 1.565 m, after

drilling completion and hydraulic tests the well was never exploited. On the depth in intervals of 967-

1.565 m the well exposed Devonian aquifer (Paleozoic) in fractured limestone. In a preliminary pilot

testing of this aquifern by means of compressor and with the additional action of natural gas lift a

discharge of 336 m³/day was obtained. The chemical composition of water: bromine-hydrogen-sulphide-

chloride sodium-water of high salinity (28,4 g/dm3), alkaline (pH 8,75). The water also revealed a

significant content of valuable in the balneology hydrogen sulphide (33,19 mg/dm3). Minimal

concentration of this component for allocating water to hydrogen sulphide waters for treatment is 10

mg/dm3. With geothermal gradient in the area of Zhovkva at 2,5-3,5°C/100 m, the expected water

temperature at the wellhead with a stable intake 60-130 m3/day can reach 30-38°C.

As listed among the investment-attractive offers from the Sambir district state administration, an area

within Pyniany village (outside the settlement) is located and intended for use as a recreational and

industrial zone at the source of underground thermal water (Figure 4.4.7.1). The territory has 3 wells

with depths ranging from 2.000 to 4.000 m with a rich geothermal waters reserve. Well testing of the

exploratory holes 1 and 6 in the south-eastern part of the productive horizon of the Pyniany gas field

obtained strong inflows of water with a large gas factor. Daily flow rate of a 3.094 m deep well „Pyniany

1” reaches 794,8 m3 at a temperature in the stratum ranging from 25 to 70°C, accompanied by the daily

output of 8.000 cubic meters of gas. Iodine content in thermal water is 26,2 g/dm3.

4.5. The Cis-Carpathian Depression 26

4.5.1. Cis-Carpathian

The Cis-Carpathian, depression from a hydro-geological point of view, is a first class, pressurized water-

bearing basin. It is sub-divided into two second class water-bearing basins: the Chop Mukachevskii and

Solotvinskii pressurized water-bearing basins. The hydro-geological environment in the Cis-Carpathian

water-bearing basin is not homogenous. It is not uniform even within the two sub-basins. The

mineralization of the geothermal waters of the Chop-Mukachevskii basin vary in quantity and kind from

10 g/l to 300-350 g/l.

Significant flow-rates (see Table 4.5.1.1) of waters from Paleozoic, Early Miocene and Sarmat deposits

have been observed during prospective drillings in the area of the town of Uzgorod, situated in the north-

western part of the Cis-Carpathian Depression, close to the borders with Romania and the Republic of

Slovakia.

The Uzgorod site is characterized, as is the territory of the entire depression, by a block structure of pre-

Neogene folding base. Multi-directional tectonic movements of the blocks have resulted in significant

variations in the depth of the base. The highest part is the Uzgorod transversal uplift.

The roof of the base is located at a depth of less than 1000 meters. Uneven, but sometimes up to

hundreds of meters thick, the sedimentary mantle of lower Miocene is a significant structural element of

the hydro-geothermal environment of this site. The most productive area proved to be the sandstone

water bearing horizon of the adjacent Russko- Komarovskii uplift. The name of the drill-site is Uzgorod

- 2T Table 4.4.7.1.

26 Stoyanow B., Taylor A., Geothermal Resources in Russia & Ukraine, Bob Lawrence& Associates, 1996, p.13

72

Table 4.5.1.1. Geothermal Prospective Drillings in the Transcarpathian region (after Stoyanov, Taylor, 1996)

Location

Hydro-

geothermal

complex

Depth of

temperature

measurement m

Flow-rate in

m3 / day

T1 in oC

T2 in oC

Uzgorod – 1T Paleozoic 1.900 300-500 50,5 88,6

Uzgorod – 2T Early Miocene 1.350 46.8 - 76,15


Uzgorod – 2T Early Miocene 1.940 214 - 97,6


Uzgorod – 2T Early Miocene - 138 – 273 - -

Uzgorod – 4T Early Miocene 1.300 43 - 72,2

Uzgorod – 5T Paleozoic 1.012 40 – 90 - 65

Tereblia – 6 Tuffs 2.350 500 – 900 86,5 96,5

Irshava – 2 Cretaceous 3.200 115 - 136,3

Beregovo – 2T Early Samat - 346 - 691 44,5 -

Prospective areas presented on Figure 4.5.1.1. (Stoyanov & Taylor, 1996):

- Dneprovsko-donetskaia through

- Donetskoe folding system

- Ciscarpathian depression

- Transcarpathian depression

Skifskaia (Scythian) platform

Conclusion based on study by

Geophysical methods

- geothermal heat flux - depth of the 150°C isothermal

Regions presented on Figure 4.5.1.2: Dneprovsko-Donetskaia (6)

Donetskoe folding system (8)

Ciscarpathian depressions (2)

• Part of the Ciscarpathian area:

• Thermal water within the limits of

45-120°C

• Depth of the productive aquifers

from 1.000 to 3.000 m.

Transcarpathian depressions(1)

Skifskaia (Scythian) platform (10)

The study conclusion shows geophysical methods of geothermal heat flux and depth of the 150oC

isotherm. The mineralization of the water is 16 - 30 g/l. The formation pressure at 1.700 m is 167,9 Atm.

and at 1.300 m, 134,64 Atm. A maximum water temperature of 108 oC was measured at a depth of

1.940 m. The discovered hydro-geothermal resources have been determined to have no commercial

Figure 4.5.1.2 Geothermal resources after Gordienko et al., 2005

73

value and are currently in conservation. The geological and hydro-geological investigation carried out

at the site is however considered insufficient to a large extent.

Some of the drillings in the region of the town of Irshava also demonstrated significant free flowing hot

water. At that site, an anticlinal crypto-diapir fold is to be found under the Neogene mantel. Most

promising are the waters in Cretaceous sedimentary environments. Such waters and environments have

been discovered by the drillings at Irshava - 2, located in the area of the Danilovo- Nevitskovo abyssal

fracture (see Table 4.4.7.1). The water-bearing rock is of fissured type, probably due to the fracture

zone. Mineralization is about 189 g/l.

The hydro-geothermal complex at the Tereblia site (see Table 4.4.7.1) is also of significant interest. The

formation is located in the central part of the Solotvinskaia depression. The maximum thickness of the

water bearing tuffs is 700 meters. The dip angle of the thrust fault planes of the Cretaceous blocks of

the base is between 5-20 deg. The water bearing suites are enveloped between these practically water-

impermeable blocks and talabor rock which is also water impermeable. This creates very favourable

conditions for the accumulation of geothermal waters.

Well Tereblia 6, drilled in the central part of the syncline, reached pressurized water-bearing horizon in

the interval between 2009 and 2.360 meters. The well is a gushing type, with flow-rates between 500

and 900 cubic meters per day. The pressure at the well head was measured at 1.2 Atm. The pressure

at 1.767 meters was 217 atm. Water mineralization is in the range of 138 g/l. Water temperature

measured at 2.350 meters was 105°C, and at the well head was 95°C (Tereblia 6).

The size of the Tereblia water-bearing complex is 15 by 5 km. Assuming, the thickness of the water-

bearing rock is 300 m. and the porosity of the rock is 10% the accumulated reserves are 3 km3. With a

temperature of over 100°C, the accumulated thermal energy is then 1,5x1018 J (A. A. Andrusenka et.al.).

Another geothermal site that is being packaged for attracting international partners is the Kusminka site

in Stavropolskii Krai. The field offers waters with temperatures of 130°C. The Committee of Geology

and Utilization of the Earth’s Crust has prepared a complete business plan. Another example is the

Mutnovka site. In addition to the existing 50 to 60 MW, an additional 70 MW of geothermal resources

with potential for electricity generation has been identified. A 70 MW geothermal power plant project will

be financed by the European Bank for Reconstruction and Development (EBRD). However, the project

is still open for investors and for equipment suppliers.

To conclude, regardless of the general problems of existing environment economy, the Ukrainian

geothermal industry sub-sector offers selected possibilities for promising international cooperation.

Table 4.5.1.2. Parameters for Existing Boreholes

Name Type Temperature, °C Ownership Customer

1 Borehole 89 State-owned Local communities

2 Borehole 95 State-owned Local communities, especially Mostyska

74

4.6. Additional Area of Interest for Geothermal District Heating27

The main geothermal regions in Ukraine are focused on West, East and South. There have been

evaluated opportunities for geothermal energy in Zakarpats oblast, Lvivska oblasts and Khersons

oblast. Currently the focus is on the Western part such as Zakarpats and Lvivska regions. (Figure

4.6.1).

In these areas there are already existing boreholes

which can be used for further geothermal

utilisation. In figure 4.6.2, presented by Institute of

Renewable Energy there are two points of

interest. Both of them are existing deep boreholes.

They are being viewed not only as possible for

geothermal district heating but also geothermal

power (electricity generation). The following

parameters from both boreholes presented are in

Table 4.6.1 and map- Figure 4.6.3.

Most boreholes are owned by the state (state

companies). Therefore, the work on introduction of

geothermal energy could be done through the

central Ukrainian government and the local

communities.

The heat demand in cities changes from year to

year because of different factors, such as poor

quality of district heating supply systems and the

growing popularity of individual heating systems. All

of them creates a value for high demand on the

electricity and heat production.

27 Some areas or interest for geothermal district heating, Institute of Renewable Energy in Ukraine, 25.09.2015

Figure 4.6.2. Geothermal places of interest for boreholes

Figure 4.6.1 Geothermal areas in Ukraine Region

75

28

28 Rethinking The Strategy of Development, State Agency on Energy Efficiency and Energy Saving of Ukraine, 2010-11

National Report about Implementation of the Energy Efficiency State Policy, Monograph, Appendix B.5

Figure 4.6.5. Plan of Development of Geothermal Fields in Ukraine (Pilot Project)

Figure 4.6.3. Geothermal Fields and Cities in Ukraine

Figure 4.6.4. Geothermal Fields and Cities in Ukraine

76

4.7. Summary of Potential Area for Geothermal District Heating in West

Ukraine

4.7.1. Potential Area for Geothermal District Heating in West Ukraine

In Ukraine there is a considerable amount of geothermal resources, however still less are in use than in

the neighbouring countries. Total potential is estimated as 438 billion kWh annually, which is a

reasonable amount of resource for space and water heating, cooling, residential, public and industrial

purposes.

In most of the regions geothermal boreholes are used for thermal water in swimming pools and as

additional heat supply for boilers at private residents. The installed capacity of heat supply systems are

on a level of 13 MW. The country plan was to increase the volumes of thermal water by 2005 to 200

MW and by 2010 to 250 MW. At present there has been confirmed to use the most thermal waters for

municipal heat supply. Thermal installed capacity of Ukraine is 10,9 MWt generating 119 TJ of energy

annually. The current geothermal energy structure, supply energy to nine different systems developed

in the regions of big towns and surrounding villages.

However, the Ukrainian geothermal potential is not the highest one among the East European countries.

The country is using just 2% of the possible geothermal utilization, but has the potential to develop to

15% and even with the uncertainty of the prices and operation of energy production and supply,

geothermal district heating seems to be steady solution.

Due to the developments and pre-feasibility studies the good prosperity regions are located on the West

side of the country, including regions such as Lviv oblast, Carpahtinas oblast and also Ivano- Frankvisk

oblast. Three of the areas have potential for commercial use of geothermal energy and have been in

development for at least 20 years. However, their technology needs to be mastered

Geothermal resources in the country profile are based on the thermal data base, which differs

dependently on the regions geological structures. The areas that have been identified for further

development have already had some initial investments as well as feasibility studies.

For commercial exploration and definition on which areas to focus there should be proposed to receive

a high resolution maps of thermal resources, information on the thermal waters flow and précised

resource research due to the lack of data. The thermal energy in the western part of the country is much

wider than the energy from other resources.

Table 4.7.1.1. presents the available borehole parameters in West Ukraine with information on their

depth, temperature and assumed purpose. The table is missing data on the thermal waters flow, which

would be essential for further study and receiving accurate results. Table 4.7.1.3 presents data on the

possible studies of the geothermal areas with its potential future development.

77

Table 4.7.1.1. Geothermal well Parameters in West Ukraine

First area of interest would be Lviv region, which has great prospectives, but there is a lack of data on

the exact size of resources. The main data represents the delivery of thermal waters with an isotherm

of 120°C at the depth of 3000m using approx. 5- 6 boreholes. The balneology therapies can be found in

the regions of Briukhovychi (1400- 1500m and temperature of 34-37oC).

29 Borehole symbol refer to figure 4.3.3.1

Region Borehole

Symbol 29 Depth, m

Temperature of the

outflow, °C Wells Well purpose

L’viv 3.000 120 5 or 6

50 Direct use

52 Direct use

56 2.500 to

4.200 m 55 - 70 Direct use

61 Direct use

62 Direct use

63 Power generation

64 Direct use

65 Direct use

Zakarpathia 1.000 - 2.500 60-90 2 Direct use

98 Direct use

101 Direct use

Ivano- Frankvisk 3.500 80-120 3 Direct use

24 Direct use

27 Direct use

32 Direct use

Figure 4.7.1.1. Boreholes that are good for

Geothermal Power Generation and direct use

of Geothermal Energy

Figure 4.7.1.2. Some perspective Geothermal

Energy objects in Ukraine

Cities already in

cooperation with

EBRD Cities already in

cooperation with EBRD

Mostiske Mostiske

Berehove Berehove

Geothermal data

Geothermal

data

78

Small Towns Priority

Within the L’viv region, there is availability for district heating in the Mostyska (population of

approx. 11.100 people). The region poses two boreholes with good performance parameters. It can

deliver, on the depth of 3.000 m, waters with temperature of 95°C-130°C. There is no information on

the flow rates of production wells, which should be at least 100m3/hr. Therefore, it is recommended

to take the geothermal wells for further expansion and focus on new utilization proposals due to the

fact that current projects are being in development in cooperation with the nearest Polish town.

Second area of interest would be Pyniany gas region (approx. 700 people) with two wells. It is

located in the western part of Sambir District (population of 69.000 people) located in L’viv Region.

The wells are from 2.500 to 4.200 m deep (Table 4.7.1.1). According to geophysical studies, all the

wells are watered, productive thermal aquifers belonging to the lower Dashava and upper Dashava

rock located at the depth of 1.740 – 2.420 m. The layer temperature of these horizons varies from

55 to 70°С. The Pyniany-1 well is good for creating and operating a system of complex use of

geothermal energy. The Pyniany-2 well is recommended for reinjection of used thermal water. It is

located at a distance of 1 km to the north-east of the Pyniany-1 well. The Pyniany-1 and Pyniany-2

wells were drilled in the 1970s and abandoned after drilling due to their gas non-productivity. At

present both wells need to be restored. According to SC Zakhidukrgeologia, the estimated cost of

restoring each well is USD 60.000.30

Third area of interest is the Zakarpattia region, one of the primary geothermal regions. Wells

located in this area are able to deliver the thermal waters up to 90°C from reservoirs at a depth of

1000- 2500 m such as Berehove, Kosyna, Uzhgorod (population of 115.000 people) (see location

on map- Figure 4.6.3). Geothermal waters in this regions have high potential to be used for heating

and hot water resources. Zakarpattia alone is an area which delivers 1/3 of total of the Ukraine’s

geothermal thermal capacity (Table 4.7.1.2).

Exploration sites for further development should be Berehove, Uzhgorod sites in Zakarpattia region

and Mostyska in Lviv region. (Table 4.7.1.2)

Table 4.7.1.2. Example of current Geothermal Projects in Zakarpattia Region

Geothermal object

Year of

introduction

in operation

Thermal

capacity

(MWt)

Annual

economy

of fuel

1 System of the geothermal heat supply of the

Beregovsky’s sport center. Beregovskiy area,

Zakarpatskaya region.

1978 2,1 1.215


sanatorium “Kosyno”. Beregovskiy area,

Zakarpatskaya region.

1998 1,2 860


sanitary complex “Latorytza”. Mukachevskiy

area, Zakarpatskaya region.

1985 0,2 210

Total in Zakarpattia 3,5

Total in Ukraine 10,9

Percentage 32%

Fourth area of interest should be Ivano- Frankvisk region (population of 223,000 people). The

region had a prefeasibility study of geothermal facility in Ivano- Frankivsk town (see map on Figure

4.6.1), which could obtain an alternative solution for surrounded region for housing and industry

using a binary system. The project had plans to produce 139.000-230.000 GWh/year which could

30 Rethinking The Strategy of Development, State Agency on Energy Efficiency and Energy Saving of Ukraine, 2010-11


79

fully supply the residents of the region. Due to the uncertainty with the finances, project has not

been finished. It is recommended to be able to focus on the further development due to its valuable

output.

Recommendations for choosing the boreholes to further development should consider information on

the flow rates which are gathered from well tests. Evaluation of flow rates and enthalpies of production

wells determine the deliverability of the wells.31 It is recommended to take into consideration for

geothermal wells with large flow rates that they require larger-diameter production intervals than typical

oil and gas wells. It is important due to the fact that most of the Ukrainian geothermal wells were drilled

with the purpose of oil and gas exploration. In case of unexpected problems, they require an extra string

of casing, which was not in the original design so the production casing will be smaller than planned,

reducing the potential flow rate and adding cost.32 To guard against such a situation the casing program

is often designed with the upper casing one size larger than required, in case a contingent string is

needed.

Statistically, one well can generate 2-5 MW of heat energy33. The optimal work of the heat delivery the

piping systems should not be longer than 10 km ensuring efficient operations.

Due to the fact that the geothermal wells produce a relatively low-value fluid, flow rates must be much

higher (more than 100 m3/hr) than for oil and gas wells, and geothermal wells produce directly from the

reservoir into the casing, instead of through production tubing inside casing as in most oil wells.

Productivity of most production wells up to 34 cm casing is 750-10.000 million m3/hr, so the formation

has very little skin damage initially. Recommended overview of the geothermal fields that are suitable

for industrial development are stated in table 4.7.1.3 in the region of West Ukraine.

Table 4.7.1.3. List of Geothermal Fields suitable for Industrial Development34

Name of

geothermal

deposit

Expected

exploitation

resources of

thermal

waters (to

the

maintenance

of formation

pressure)

m3/day

Tempera

ture of

thermal

waters

at the

wellhead

, ºC

Thermal

power of

geother

mal

install-

mations

MW

Fuel

economy,

t.s.f./ year

(tons of

standard

fuel per

year)

Directions of using

Population

Zakarpattia oblast / region

Berregivske

Berehove

10,300 58 21,55 21.152 Heat supply of village Berehovo,

balneology

24.458

(2013)

Kosinske 12.700 52 22,84 22.375 Heat supply sanatorium-

preventive clinic “Kosino”

balneology

Very small

Tereblyanske 27.800 89 100,00 82.359 Heat supply of sanatorium

“Tereblya” and village “Tereblya”

balneology

8.500

(2001)

Velyatynske 82.800 60 181,121 176.405 Heat supply sanatorium “Tepli

Vody”, balneology

Veloiko

Paladske

43.300 53 78,92 77.079 Heat supply sheep farm hotel,

bath, club and village counal

Veliko

Baktyske

6.200 59 13,25 12.953 Heat supply of pig farm residential

multi-storey buildings

Uzhgorodske

Uzhgorod

56.300 60 120,42 117.707 Heat supply communal and

industrial facilities Uzhgorod

115.000

(2015)

Total / oblast 239.400 538 510.030

31 The role of the well testing in geothermal resource assessment 32 Handbook of Best Practices for Geothermal Drilling 33 Rethinking The Strategy of Development, State Agency on Energy Efficiency and Energy Saving of Ukraine, 2010-11 National Report about Implementation of the Energy Efficiency State Policy, Monograph, 34 Rethinking The Strategy of Development, State Agency on Energy Efficiency and Energy Saving of Ukraine, 2010-11


80

Pre-Carathian deflection, L’viv oblast / region

L’viv, region 730.000

Mostiske 7.800 107 27,3 15.783 Heat supply industrial premises

railway station, depot, residential

buildings of village Mostyske

11.000

Chizhkivske 2.600 98 8,0 4.625 Heat supply of warehouses,

residential buildings

Sudovo

Vyshnyansky

12.860 63 17,5 10.117 Heat supply agro industrial

complex objects, residential

buildings

Totatl /

oblast

23.260 52,8 30.525

Pre-Carpathian deflection, Ivano-Frankivsk oblast / region

Ivano-

Frankivsk,

229.000

Dolynske 3.197 73 5,9 3.411 Heat supply of oil refining factory

facilities, residential buildings

Small

Pіvnіchno-

Dolinske

1.296 76 2,6 1.503 Heat supply of oil industry,

residential buildings

Total by

oblast:

4.493 8,5 4.914

Chernivtsi oblast / region

Chernivtsi 263.000

In Ukraine (not only Western Ukraine) there are more than 170 companies that supply district heating

and hot water. Usually, every city has their own organizations and a number of small district heating

organizations.

The heating sector can be divided into two main components:

the district-heating sector, owned and operated by municipal heating companies; and

heating systems to serve industry, such as boilers or direct firing units. Today there are 79,908 boilers for heat generation in Ukraine.

The district heating sector is composed of about 7.000 heat-only boilers and another 250 CHPs (Radeke

and Kosse, 2013). Ukraine’s district heating sector is inefficient for multiple reasons, and addressing

them will be important for Ukraine’s energy-security goals as well as for the promotion of renewables.35

In Western Ukraine there is a widely used two-part tariff for district heating. One is paid the whole year

for the maintenance of district heating systems. The other is paid only through heating season for used

energy.

For price policies in Ukraine, the government made different prices for district heating for different

customers.

The households pay less than industry and commercial customers.

Secondly, the lower household prices than the market price brings a gap which is compensated by regulating higher price for industry and commercial customers.

Between the cities, there is also a price differences in regards to the regional industry and

household ratio.

35 REmap 2030: Renewable Energy Prospects for Ukraine, Chapter 3, p 6

81

Table 4.7.1.4. Price for used heat energy36

Type of customer Price,

EURc/kWh

Household 2,04

Other (industry, commercial) 4,76

Government-financed organization 4,76

Estate managers of the apartment house 1,68

The Renewable Energy Institute confirmed the continuation on the research of geothermal potential of

Ukraine. The geothermal potential of petroleum boreholes has been investigated and more than 400

boreholes throughout Ukraine were analysed. Besides geothermal energy, the institute investigates heat

pumps with different heat sources: surface water, external air, waste resources and etc. The data was

used to analyse and create the resource heat potential atlas.

As can be seen from Figure 4.7.1.3. the district heating prices in Ukraine are very low in international

comparison, this can also be confirmed looking at Figure 2.4.4.1. This is mainly because district heating

prices have been heavily subsidised in Ukraine, far more than in other countries. Therefore, it is

important to stop subsidising district heating prices in general, although it would mean the lowest income

homes would need support.

The main rule for Ukraine’s district heating should be efficiency improvements for the sector, as one of

the main tasks for energy- intensity reduction goal of 50% by 2030. The main improvements should

focus on boiler houses, replacing network pipes, installation of heat substations and installing heat

meters.37

Today’s challenge is upgrading the systems to make the households more responsive and bring the

amount of used gas per capita to lower number. It has been shown that only 20% of households have

a functioning metering system, which is too low in comparison to other European countries and also to

step forward with efficiency improvements. Currently the main focus could be on the district heating

systems and their restructuring process. The promotion of these steps should be among individual

heating systems and industrial buildings connected to grid.

36 - Gcal=109 calorie (1 calorie ≈ 4,1868 J), It shows the price for district heating in L’viv by the organization

“L’vivteploenergo”. The price for households is inclusive in VAT (value-added tax), the others are shown without VAT. Rate of exchange on 25 September 2015: 100 EUR = 2412,8210 UHR 37 IEA (2012b), Energy Policies beyond IEA Countries: Ukraine. OECD/IEA, Paris, http://www.iea.org/publi

cations/freepublications/publication/Ukraine2012_free.pdf

Figure 4.7.1.3. Regional and National Differences in Tariff Levels

U - Ukraine

M - Mongolia

B - Bosnia Herzegovina

S - Serbia

K - Kosovo

C - Croatia

Source: IFC 2015

Ukraine Price Level

DH revenue in $ 1.000 per households per year

82

IFC Report 2015

In a recent report from IFC, it is stated that, “In August 2014, a National Energy and Communal Services

Regulatory Commission (NECSRC) was established as an independent regulator for the larger DH

utilities, and it presently regulates the 227 largest DH utilities.

NECSRC’s main responsibilities include issuing licenses and regulating tariffs for generation,

transmission, and supply of heating and hot water supply services. In addition, the regulator is

responsible for approving the investment programs of utilities, monitoring them through review of their

annual and quarterly reports, and controlling compliance with the license conditions.

NECSRC’s current work program includes increasing all of the mentioned tariffs to a full cost-recovery

level and eliminating cross subsidies among the public, budget organizations, and other customers.

However, NECSRC is in a challenging position because of the significant increase in natural gas prices,

the non-cost-recovery tariffs of DH utilities for the public, and the reduced affordability for end-users due

to the current political situation in Ukraine. One of NECSRC’s current priorities is to stimulate utilities to

switch to alternative fuels and reduce gas dependence”. (IFC, 2015)

4.7.2. The Authorities have made Progress in Reforming the Inefficient Energy

Sector

In a recent transition report from EBRD, it is stated the “efforts have been made to put Naftogaz’s

finances on a more sustainable footing and to reduce the quasi-fiscal deficit. Household gas and heating

prices were increased by 285 percent and 67 percent, respectively, in the first half of 2015, with plans

to reach a 100 percent cost recovery level by April 2017.

This will help to curb corruption in the sector, foster energy saving and energy efficiency and attract

investment. A programmed scale-up in social assistance is expected to protect socially vulnerable

households and ongoing social safety net reforms aim to better target beneficiaries in 2016. The gas

market law, which was approved by parliament in April and enters into force in October, introduced a

new model of gas market and paved the way for the Naftogaz unbundling, increased competition and

potential investment in the sector.

In 2014 Ukraine further diversified its gas supply sources by increasing the share of imports from the

European Union (EU) to approximately 25 pe cent of total imports. In the first half of 2015 the share of

gas imported from the EU interconnectors represented approximately 60 percent of the total import.

Ukraine stopped buying Russian gas after breakdown of the June 2015 EU-Ukraine-Russia trilateral

gas talks, which were an attempt to find a follow-up agreement to the EU-brokered “Winter Package”

that had ended in March 2015 and had been partially extended to June 2015. On 12 October 2015,

Russia resumed gas deliveries to Ukraine. Before the resumption of gas flows, Ukraine prepaid for

approximately half of the gas deliveries planned in October 2015”. (EBRD, EBRD Transition Report on

Ukraine 2015 - 2016, 2015)

4.7.3. Legislative base of Geothermal Energy in Ukraine

In recent years, in legislative basis of Ukraine a lot has been done to regulate legal relations in the field

of conservation, scientifically proven natural resource management, environmental protection,

development of alternative and renewable energy sources, including, geothermal waters. There have

been accepted Codex "On Subsoil" (from 27.07.94, № 132/94-VR), "Water Codex" (from 06.06.95, №

213/95-VR), the law "Of alternative energy sources" (from 20.02.03, № 555-IV) and others.

83

The classification of geothermal waters reserves, approved provisions for preparedness of geothermal

deposits to commercial operation, defined procedure for conducting geological exploration works at

geothermal deposits, set technical requirements for safe, reliable and economic operation of heat

sources were brought up into accord to the international standards. The procedure for development of

geothermal deposits, requirements for provision of special permits (licenses) is based on the Cabinet of

Ministers of Ukraine № 615 of May 30, 2011 "On approval procedure for giving special permits for

subsoil use".

Requirements forresearch on geothermal deposits, that are used to calculate their reserves and

government calculation, are set on the basis of "Instructions of reserves classification and mineral

resources of subsoil state fund to thermal power underground water deposits", which was approved by

the Cabinet of Ministers of Ukraine from 21.06.07, №707/13971). In the field of standardization adopted

state national standards of Ukraine: "Geothermal energy. Terms and definitions", "Geothermal energy.

Geothermal heat stations" and "Geothermal energy. Geothermal power stations". Developer of

standards - Institute of Renewable Energy, NASU.

4.8. The District Heating System in Ukraine

4.8.1. Modernization of the District Heating Systems in Ukraine38

New projects in the geothermal sector in Ukraine, will have to take into consideration the overall

framework conditions regarding the profitability of concerning projects. The overall district heating

system is a part of such framework conditions. The World Bank, (ESMAP) did analyse the district heating

system in Ukraine 2012, in the report “Modernization of the District Heating Systems in Ukraine: Heat

Metering and Consumption-Based Billing.”. Chapter 4.5 is a reference in the report. (WB E. , 2012).

Ukraine’s district heating sector is in physical and financial crisis. During the past 15 years, many of

Ukraine’s neighbouring countries have upgraded District Heating (DH) systems making DH a financially

sustainable way of providing good quality heat and hot water services at affordable prices. Ukraine has

not made this transition. It did not follow the sector reform path of most neighbours. Countries in the

region implemented policy reforms through effective changes to the legal and regulatory framework,

enabling them to create independent regulators, raise tariffs to reflect full cost of service, involve the

private sector and enable new investments. The introduction of heat metering at the building level was

among the first steps in implementation of the investment programs.

Ukraine has kept regulation, ownership and operation of DH companies in the hands of local

governments, and kept tariffs well below the levels needed to provide good quality service. Heat

metering and consumption-based billing are important steps toward improving service, lowering

household costs.

Building-level heat metering and consumption-based billing are critical steps in meeting customer

expectations for heating and hot water service. Public consultations with customers in two typical mid-

sized cities in Ukraine, L’viv and Mykolaiv, confirm that customers want better quality service at

affordable prices and that they do not trust the current system. Investing in building-level heat metering

and implementing consumption-based billing can address these concerns in the following ways:

Better quality of service. Building-level meters are typically installed along with a building-level substation package (ITP) which allows supply to be matched with demand through better temperature control at the building level.

Lower cost. These investments reduce heating demand by roughly 15-25 percent, thereby,

combined with consumption-based billing, decreasing average household expenditure on heating.

38 Report on Modernization of the district heating system in Ukraine, p. xii

https://openknowledge.worldbank.org/bitstream/handle/10986/17147/649890ESW0P1220M0UkraineDHreportENG.pdf?sequence=1

84

Improved transparency. Consumption-based billing provides information about customers’ heat

consumption and how it relates to their bills as well as provides the incentive to balance heat supply

and demand.

Following improvement of financial viability of DH companies. Heat meters with ITPs allow DH

companies to:

Reduce the cost of supply. Building-level metering helps optimizing the design of the heat supply

system thus reducing costs further, particularly through controlling network losses.

Increase revenues. Because meters with ITPs help improve the quality of service and transparency,

they improve customers’ trust and, hence, their willingness to pay. Additionally, improved quality of

service can help improve collections from existing customers, attract new customers, and re-gain

customers who had disconnected in favour of other heating solutions.

Services of quality DH should be affordable. There are obvious tensions between the objectives

of improving quality of service for customers, while keeping DH affordable. Tariffs would need to

more than double to reflect the economic costs of heat production. A one-off tariff hike of this

magnitude would make DH services unaffordable for most Ukrainian households at current

consumption levels.

The proposed solution is to reduce heat consumption by 50 percent to compensate for a doubling of

prices, coupled with a targeted social safety net to protect the poor. This can be done by:

Assigning high priority to providing targeted subsidies to poor consumers to advance tariff increases;

Installing ITPs with temperature controls (15-25 percent savings);

Implementing energy efficiency measures to improve building envelops (20-25 percent savings);

Installing heat-cost allocators (15-20 percent savings);

Decreasing supply costs by reducing network losses and increased use of combined heat and power

plants (10-20 percent savings).

Complementary reform measures are required within institutional, legal and regulatory

to support investments including:

Complete de-politicization of the tariff regulation by passing responsibility to an independent sector

regulator;

Making DH companies clearly responsible for the financing, purchasing, installation, servicing of ITPs

and meters as well as reading of meters;

Standardizing heat supply contracts. Heat supply contracts vary substantially across Ukraine. The

language is often confusing, excessively detailed and, in some cases, contradictory;

Fostering the creation of homeowners’ associations (HOAs). DH companies prefer to have contracts

with HOAs because they are legal entities with an organized administration.

The financial support required includes:

Targeted subsidies for poor customers. The Government could better serve poor customers by

providing direct subsidies to the individual households, rather than to DH companies;

Financing energy efficiency improvements. The Government could facilitate such investments

through grant or concessional loan programs, funded or financed by donors.

The International Financial Institutions (IFIs) can help, as they have in other countries, with:

Concessional financing for heat meters and ITPs. IFI financing could be on-lent to municipal

governments to use for investment by municipally-owned DH companies;

Technical assistance (TA). IFIs could fund TA for tariff-setting, affordability studies, setting-up a

country-wide Building Certificates program; provide advisory services for the new utilities regulator;

and assist with the design of targeted social safety nets; Funding for pilots. Given the potential for

demand-side energy savings in Ukraine’s buildings, IFIs could also assist with the design and funding

of energy efficiency pilots in buildings.

85

4.8.2. What Needs to Happen Next

Heat metering with ITPs is not widespread in Ukraine even though, as Section 4.5 showed, both

customers and DH companies could benefit from it. At current tariff levels, DH companies have little

incentive to invest in building-level heat meters and ITPs. Although heat metering with ITPs could

provide cost savings to consumers at current tariff levels, organizational and funding challenges deter

most DH customers from taking the initiative to install heat meters in their buildings, and most of them

are not aware about ITPs and their benefits. (WB E. , 2012).

Role of the Independent Regulator

Creating an independent regulator is an important step to improving the financial sustainability of the

DH sector while maintaining affordability for customers. An independent regulator could help gradually

increase tariffs to cover the full, unsubsidized cost of providing DH services while promoting cost saving

measures. For example, including meter installation as a requirement in the licenses of DH companies

can help keep heating bills affordable for households. The independence of the regulator is key to this

process. By maintaining an arms-length relationship with regulated DH companies, consumers, and

political authorities, an independent regulator could make decisions that although politically difficult,

have long-term benefits for both DH companies and customers.

Proper tariff setting serves as the regulator’s most effective tool to protect customers while ensuring the

financial sustainability of the sector. Proper tariff setting should induce cost saving incentives for DH

companies and customers alike. Heat meters in conjunction with a good tariff methodology play an

important role in helping create these regulatory incentives. Specifically:

For the regulator, heat meters provide accurate data on actual consumption at the building level.

This allows regulators to accurately set volumetric tariffs and create benchmarks for efficiency

improvements for heat suppliers;

For district heating suppliers, metering will indicate how big actual network losses are and

provide incentives to reduce them through targeted investments in networks. Moreover, heat

metering and consumption-based billing will be the first steps for the companies to improve their

image and regain trust of the customers;

For customers, heat meters along with tariff methodologies that allow customers to pay for heat

based on actual consumption as determined by meter readings provide incentives to reduce

heating bills through energy efficiency improvements.

Once incentives are properly aligned, an independent regulator is well-placed to help share costs and

benefits equitably between customers and DH companies. To do this, the regulator could eventually

consider implementing incentive-based regulation (for example, price-cap or revenue-cap) with clear

service quality targets in order to give the DH companies an incentive to cut costs while maintaining

required levels of services.

The Government of Ukraine recently began the process of developing an independent regulator. In

2010, the Government transferred responsibility for tariff setting from local authorities to a newly created

independent regulator. In July 2010, the Parliament of Ukraine passed a law on the National

Commission for the Regulation of the Utilities Market in Ukraine. While the Commission was being

formed, the National Electricity Regulatory Commission served as the DH sector regulator. In July 2011,

the President of Ukraine signed a decree creating the National Commission on the Regulation of the

Utilities Market.

Role of DH Companies

DH companies are best placed to carry out the tasks of financing, installing, owning, servicing of

building-level heat meters and ITPs, as well as reading heat meters. Worldwide experience shows that

DH companies are normally responsible for installing and owning ITPs and building-level heat meters.

International best practice should resonate with customers in Ukraine since, as public consultations

showed, most respondents trust DH companies to install and manage building-level heat meters due to

their technical expertise. Assigning these responsibilities to DH companies has a number of additional

benefits as well.

86

Role of the Government

The Government should play an important role in governance by helping to promote heat metering and

consumption-based billing as well as improving the financial sustainability and affordability of DH

services. The Government can do this by gradually eliminating gas subsidies to DH companies while

simultaneously promoting initiatives that help reduce heating costs to households. Timing these efforts

will be key; a phased approach in which gas subsidies are eliminated over a medium term can help

ensure that customers and DH companies have time to implement necessary cost saving measures.

Moreover, the Government can support initiatives that reduce costs—and improve affordability—in the

DH sector by:

1) Financing energy efficiency improvements. In addition to heat metering, investments in

production efficiency and consumer-end energy efficiency can reduce the cost of heat

production. The Government can help finance these investments for DH companies and for

consumers. For example, the Government could obtain concessional financing for DH sector

energy efficiency improvements. This could, in turn, be on-lent to municipally-owned DH

companies, thereby reducing financing costs for investments in rehabilitation and replacement.

Or, the Government could develop a program to help fund energy efficiency capital

improvements in residential buildings. Unlike existing subsidies to DH companies, which simply

offset costs that would otherwise be incurred by customers, Government support for energy

efficiency helps reduce costs;

2) Supporting public awareness campaigns about the benefits of metering. Public

consultations clearly showed that customers believed heat metering would reduce their heating

bills. However, they also showed that customers did not think of implementing heat metering as

a way to cope with higher heating costs. As tariffs for DH services begin to increase, the

Government can support public awareness campaigns that help customers see heat metering

and demand-side energy efficiency investments and behaviour as a viable solution to reducing

heating bills;

3) Providing incentives for demand-side management. Annual energy consumption of a typical

household in Ukraine averages roughly 250-275 kWh/m2. By comparison, a typical household

in the European Union consumes approximately 120 kWh/m2 annually. Additionally, the EU

aims to reduce average household energy consumption to 60 kWh/m2 by 2020. Achieving

current EU consumption levels by 2020 and the 60 kWh/m2 consumption target by 2030 could

be a realistic goal for Ukraine. The Government could help reach this goal through measures,

such as implementing building codes and EE standards, loan guarantees or tax relief for EE

investments in residential buildings;

4) Providing targeted support to poor customers. Some customers may still not be able to

afford DH services even after a reduction in costs through efficiency improvements. The

Government could better serve these customers by providing direct subsidies to the individual

households. Subsidies to DH companies effectively subsidize all customers – even those that

can afford DH services. Eliminating these subsidies frees up fund which could be more

effectively targeted towards the poorest households.

Harmonization with EU Law 39

The Government has a major incentive to address heat metering because it is a necessary component

of Government efforts to harmonize Ukrainian laws with EU laws. Specifically, Ukraine must make heat

metering compulsory in order to comply with EU law.

Ukraine signed its Accession Protocol to join the Energy Community (EnC) on 24 September 2010,

ratified the Protocol on 15 December 2010, and is exercising its full membership powers as of January

14 2011. In December 2009, the Ministerial Council of the EnC decided to include the Energy End-Use

Efficiency and Energy Services Directive 2006/32/EC, of 5 April 2006 in the acquis mandatory under the

Treaty.

As a member of the EnC, Ukraine is required to enforce this Directive. Article 13 (1) of this Directive

requires Member States to "ensure... that final customers for electricity, natural gas, district heating

and/or cooling and domestic hot water are provided with competitively priced individual meters".

39 Report on Modernization of the district heating system in Ukraine, p.55


87

In order to harmonize Ukraine norms and standards with EU law, the Law in Ukraine should clearly

require that every building, or group of adjoining or related buildings belonging to the same owner, which

are connected to a DH network have building level heat and domestic hot water meter. The law should

be enforced step by step and supported by a clear action plan.

4.8.3 What Can the International Financial Institutions Do to Help? 40 Ukraine can take the following steps to begin to improve the financial sustainability of the DH sector

while maintaining affordability to customers:

Financing and implementing heat metering and consumption-based billing with ITPs/EU;

Financing energy efficiency measures along heat supply chain;

Technical assistance to the newly established regulator;

Technical assistance for the design of targeted social safety nets.

The International Financial Intuitions (IFIs) can help the Government of Ukraine begin to address these

issues through a combination of loans for physical infrastructure and technical assistance for pilot

studies, public outreach and regulatory support.

Loans for heat meters, ITPs and other energy efficiency measures to improve of heat supply 41

DH companies are best placed to purchase, finance, and install building-level heat meters. However,

most DH companies lack the financial resource to undertake this type of capital investment without

additional resources. Furthermore, commercial banks in Ukraine are unwilling to lend to most DH

companies because of their poor credit-worthiness. Unfortunately, the current poor financial condition

of DH companies coupled with the difficulty of raising tariffs before customers perceive benefits means

DH companies will struggle to attract financing for heat meters and related investments that will lead to

improved financial performance in the longer term. The IFIs can help break this cycle by providing low

cost financing. Providing a loan for heat metering with ITPs can most effectively break this cycle because

heat meters with ITPs and other energy efficiency measures:

Improve comfort and reduce costs for customers, allowing the regulator to more easily justify

necessary tariff increases;

Help DH companies identify areas in the network with highest losses allowing them to better

prioritize investments in rehabilitation and modernization. Reduction of network losses and

better use of CHPs could reduce the cost of supply could by roughly 10 percent, thus

improving affordability of DH services.

Heat metering - a first-step to DH sector reform in Poland 42

During the mid-1990s, Poland experienced many of the problems facing Ukraine today. In the early

1990s, the Government of Poland transferred ownership and responsibility for DH companies to the

municipalities. The decentralization of ownership and a phasing out of investment subsidies meant DH

companies lacked funds to effectively operate, maintain, and rehabilitate their infrastructure. This, in

turn, led to high heat and hot water losses, which further deteriorated the financial sustainability of DH

companies.

World Bank financing played an important role in helping the Government tackle the problems facing

the DH sector. From 1991 to 2000, the World Bank provided US$340 million for the Heat Supply

Restructuring and Conservation Project in Poland. The project included support for: i) energy sector

restructuring, commercialization of restructured enterprises, introduction of a transparent regulatory

framework, and pricing policy reform, ii) rehabilitation and modernization to extend DH infrastructure

asset life, and iii) energy conservation and pollution reduction through investments in energy efficiency

improvements. The Government’s dual effort-supporting investments in energy efficiency and

conservation along with pricing policies that led to gradual increases in residential tariffs in conjunction

with reductions in budget layouts for energy subsidies was key to the project’s success. Energy

40 Ibid., p.29 41 Ibid., p.29 42 Report on Modernization of the district heating system in Ukraine p. 30


88

efficiency measures carried out by DH companies achieved a 50 percent reduction in heat transmission

and distribution losses, which led to 22 percent energy savings, equivalent to roughly US$55 million per

year.

Building level heat metering was a crucial component of these energy efficiency improvements. Metering

in the buildings covered by the five DH companies targeted in the project increased from 21 percent at

the start of the project to 100 percent by project completion. Further evaluation of the project underlined

the significance of metering: without accurate measurement of the heat supply, DH companies often

vastly underestimated the level of heat transmission losses in the network (which could reach up to 20

percent of heat purchased and represent up to 17 percent of variable operating costs). As a result, the

companies failed to properly prioritize heat loss mitigation and lost major opportunities for cost savings.

Evaluation of the project concluded that, “future Bank projects with DH companies should assign top

priority to metering of total purchases and sales of heat as early as possible during project

implementation.” Source: World Bank. Implementation Completion Report: Heat Supply Restructuring

and Conservation Project in Poland. 5 June 2000.

4.9. Competitiveness of the Geothermal Sector in Ukraine

Evaluation of the Geothermal Sector – Opportunities and Policy Options

When recommending formulating policy recommendations for the geothermal sector in Ukraine, the

enclosed model of 8 factors of

geothermal competitiveness,

challenges and opportunities,

was used to highlight the key

elements for policy

recommendations and options in

the concerning countries.

(Petursson, 2014, 2012).

Success for the geothermal

sector in the concerning countries

is not only based on geothermal

resources, but also on these

factors for competitiveness.

The cluster competitiveness

model can be used in many

different ways to increase

competitiveness and growth of

companies. One possibility is to

use the enclosed model to

analyse the seven main

framework conditions in the geothermal sector;

1. Authorities and regulation.

2. Geothermal resources.

3. Scientific & technical factors.

4. Companies, management, expertise - industry, clusters assessment.

5. Education & human factors.

6. Access to capital.

7. Infrastructure and access to markets, sectors and other clusters.

8. Access to international markets and services, and finally.

By evaluating these seven factors of the geothermal competitiveness in the concerning country, it is

possible to highlight the key weaknesses and strengths of the frameworks conditions as a base for the

formulation of a better competitiveness policy for the geothermal sector; to increase competitiveness,

growth, jobs, productivity and quality of life.

Figure 4.9.1. Competitiveness of the Geothermal Sector

89

4.9.1. Opportunities and Policy Options

There are several options regarding geothermal possibilities and policy formulation, based on

opportunities and by steps towards overcoming barriers and challenges already identified.

1. Authorities and Regulatory Factors • Publicise the characteristics and benefits of geothermal energy for regional development

• Design regulation specific to the promotion of direct uses of geothermal energy.

• Promote cooperation with international organisations.

• See also additional elements page 15.

2. Geothermal Resources

• Improvement of geothermal regulation.

• Improvements for data analysis of reservoirs in regions.

3. Scientific and Technical Factors

• Promote relationships with industry.

• Promote alliances with research centres and educational institutions for the formation of

specialised human resources.

4. Companies, Management, Expertise – Industry Clusters.

• Promote alliances with research centres and educational institutions for the formation of

specialised human resources.

• Promote cooperation with IFI for financing, donor support and consulting.

• Organize workshops and conferences to improve knowledge on geothermal energy.

• Identify geothermal energy-related productive chains.

5. Educational and Human Factors

- There is not enough support for the generation of the human resources needed for the

geothermal industry.

• Creating seminars and specialized courses on the different stages of a geothermal project and

adding them to the existing engineering degrees.

• Give the personnel technical training to participate in the different stages of a project.

• Implement programs for scientific development.

• Implement programs for technical development.


6. Access to, and Cost of Capital

• Promote additional access to financing geothermal projects – domestic and international.

• Increase access to capital by providing capital to exploration and test drilling and DH networks

e.g. soft loans or donor grants, to lower the risks at the beginning of projects.


7. Infrastructure, Access to Markets, Sectors and Clusters

• Promote training in the banking system for the development of financial mechanisms specific

to geothermal energy.

• Awareness; organize workshops & conferences to improve knowledge of geothermal energy.

• Increase the available knowledge about opportunities and benefits of geothermal resources.

8. Access to International Markets and Services

• Support international cooperation in area of geothermal knowledge, training and service.

• Promote international cooperation with IFI and donors on finance, grants and funding.

• Support international consulting cooperation on various fields of geothermal expertise.

Regarding additional elements, see also chapter VIII (page15), 4.7.2, 4.7.3, 4.8, 4.9 and 4.10 on

competiveness of the geothermal sector in Ukraine.

90

4.9.2. Demo – Example of possible Geothermal District Heating Project in Eastern

Europe

Enclosed is a demo, example of a geothermal district heating project in Eastern Europe. In this case the

selling price / operational cost is approximately 3,8 c€/kWh. This conclusion can be variable between

locations – both higher and lower – deepening on several factors, like drilling cost, population (the larger

the better, due to economics of scale), etc. Technical information

Population of town 28.000 Capacity 8,6 MWt

Estim. geoth. energy prod. 23.000 MWh/year (38 l/s)

Water outflow temp. 112°C,

Bottom temp. 115 -140°C

Well depth.: 2.300 m

Flats in town 8.000

Production well 1

Injection well 1

Primary and secondary pipeline already in place before

Heating period 6 months

Project Finance

Total project € 8,5 million

Grant € 3 million.

Project minus grant € 6,7 million

Grant % € 35%

CO2 Emissions:

Estim. CO2 avoidance per kWh 203 g/kWh

Estim. CO2 avoidance per year 4.800 tonnes/year

Equal to CO2 bindings per year in 2,4 million trees/year

Equal to bindings in km2 of trees 11,4 per year

Equal to avoidance of burning oil equal to 1.600 tonnes (1 tonne of oil = 3 tonnes of CO2)

91

4.10. Opportunities and Policy Options for Ukraine

Key elements in the development of geothermal energy and financing of renewable energy projects in

Ukraine depend on international cooperation with the most experienced geothermal countries,

stakeholders, internationals financial institutions and donors. It is also important to base proposals on

global lessons learned, and challenges and opportunities in Ukraine, towards tailor made policy

priorities, programs and projects. The general recommendations for the Ukraine are as follows:




4. A properly structured policy system, is critical for success.

a. Priority 1 - Education capacity building, networking and awareness.

b. Priority 2 - Evaluation of geothermal resources.



e. Priority 5 - International cooperation, geothermal and financial expertise.

Figure 4.10.1. Opportunities and Policy Option for Ukraine

92

4.10.1. Proposal - Two Steps, 1. Pre-Feasibility Study and 2. Project Implementation

First step – Further Assessment of 2 – 3 Priority Locations in Western Ukraine

The opportunities and utilisation of priority locations are shown in figure 4.10.1,1, where the coordination

of the project is explained step by step and can be treated as a model to promote the early stage

development projects.

Figure 4.10.1.1. Two Step Strategy for Geothermal District Heating (GeoDH) in Ukraine

Step 1

Pre-Feasibility Study

and assessment of geo

resources in

2 – 3 areas in

West- Ukraine

Cities

L’viv,

Ivano Frankivsk

Chernivtsi, Towns

Uzhgorodske

Berregivske

Mostiske

Co-ordination –

International Geo

expertise & EBRD, IFIs

and authorities and

institutions in Ukraine

Finance – donor grant

finance – EBRD / IFIs –

up to € 500.000 per

location.

Time – 15 months

Step 2

Implementation Project / Investment of Geothermal

District Heating (GeoDH) Projects

Implementation of 1 – 2 projects in W-Ukraine – for GeoDH and /

or Power Generation.

Coordination – International geothermal expertise in cooperation

with EBRD / IFIs in cooperation with donor countries and

authorities in Ukraine

Implementation – PPP-co-operation – based on tendering

process.

Finance – depends on type of projects and finance and Donor

contribution, development priority etc.

Time – 24 months.

93

4.10.2. Proposal – Step 1 - Pre- Feasibility Study of Geothermal District Heating in

Ukraine

1. Proposed Project

Geothermal resources can be economically successful in comparison with fossil based energy

resources, improve economic savings, reduce greenhouse gas emissions, increase energy security,

and improve air quality and quality of life.

2. Location


1) Potential geothermal resources. 2) Population / volume, as it is a base for economic success of

projects. 3) Cities in cooperation with EBRD / IFIs, as IFIs involvement is important.

These, three locations out of six are highlighted as an option for step one for further exploration.

Location

Popu-

lation

Exp.

Utilisation

M3/day

Temp-

erature

°C

Geo. inst.

thermal

pow. MW

Fuel

economy,

t.s.f./ year*

Directions of using

* (t. s.f./year = tons of standard fuel per

year)

L’viv, city 730.000 Data

needed

Data

needed

Data

needed

Data

needed

Large DH, – exploration of geothermal

potentials needed in the area

Ivano Frankivsk 229.000 Data

needed

Data

needed

Data

needed

Data

needed



Chernivtsi 263.000 Data

needed

Data

needed

Data

needed

Data

needed



Uzhgorod 115.000 65.300 60 120,4 117.707 Heat supply communal and industrial

facilities Uzhgorod

Mostiske, 11.000 7.800 107 27,3 15.783 Heat supply industrial premises railway

station, depot, residential buildings of

village Mostyske

Berehove 24.500 10.300 58 21,5 21.152 Heat supply of village Berehovo,

balneology

Figure 4.10.2.1. Boreholes that are good for

geothermal power generation and

Geothermal district heating

Figure 4.10.2.2. Some perspective

geothermal energy objects in Ukraine

94

3. Co-ordination

International geothermal expertise in cooperation with EBRD and authorities and institutions in

Ukraine

4. Finance

Donor grant finance, in cooperation with EBRD / IFIs, up to € 500.000 per location.

5. Why is the project needed? To promote early stage development, strategy planning, capacity building, networking and awareness

of geothermal utilisation, to increase the possibility of utilisation of geothermal resources, energy

security, savings and quality of life in concerning location.

6. What will the project achieve?

Pre-Feasibility Study of Geothermal District Heating will achieve:

Re-evaluate and update the production potential of the geothermal resource.

Increase the awareness of the local authorities, as well as the public, of the potential and

benefits of sustainable geothermal utilization in the city and surrounding communities.

Evaluation of the potential increase of geothermal utilization in the city and area.

7. How will it be achieved and who are the beneficiaries?

(c) The following main project phases are proposed:

Assessment of the current status of utilization in each location; capacity of wells used, energy

produced, utilization for district heating, other direct uses, etc. as well as highlighting

framework barriers for geothermal district heating possibilities.

Potential assessment with simple reservoir models and predictions for some relevant future

sustainable utilization scenarios with special emphasis on benefits of reinjection.

Potential improvements to the current utilization, in particular district heating. Involves the

design of surface installations with emphasis on the economic and energy efficiency.

Evaluation of the potential for expansion of the current utilization, both concerning district-

heating and other possible direct uses. Report includes e.g. engineering and financial

benefits of geothermal district heating in comparison to gas and oil.

Analysis of geothermal district heating) development – international comparisons.

Evaluation of geothermal policy options and opportunities.

Dissemination of results locally and countrywide – to increase awareness of geothermal

utilisation, and utilisation, energy security, savings and quality of life in concerning regions.

(d) The beneficiaries of the program are the City x and its citizens.

8. Possible timeline of Step 1 is 15 months.

Example of possible Timeline of Step 1

No. Activity

Work

package

leader

Se

pt

Oc

t

No

v

De

c

Jan

Fe

b

Marc

Ap

r

May

Ju

ne

Ju

ly

Au

g

Se

pt

Oc

t

No

v

1 Project preparation

2 Review of documents and site visit

2.1 Site visit, data collection, meeting with stakeholders

2.2 Desk review of documents

3 Assessment and report preparation

3.1 Assessm. of GeoDH current utilisation

3.2 Assessment of reinjection

3.3 Potential improvem. of GeoDH systm. & markets

3.4 Evaluation of optional expansion and opportunities

3.5 Evaluation of policy options and opportunities

3.6 GeoDH - international comparison

3.7 GeoDH - Icelandic experience

3.8 Recommendations

4 Dissemination of results

4.1 Report on Pre-Feasibility Study

4.2 Conclusion Meeting / Seminar / Website Information

201x 201y

95

III. GEOTHERMAL DEVELOPMENT AND EXPERIENCE IN

ICELAND

5. Geothermal Resources in Iceland

5.1. The Nature of Geothermal Resources Geological background Iceland is a young country geologically. It lies astride one of the Earth’s major fault lines, the Mid-Atlantic

ridge. This is the boundary between the North American and Eurasian tectonic plates. The two plates

are moving apart at a rate of about 2 cm per year. Iceland is an anomalous part of the ridge where deep

mantle material wells up and creates a hot spot of unusually great volcanic productivity.

This makes Iceland one of the few places on Earth where one can see an active spreading ridge above

sea level. As a result of its location, Iceland is one of the most tectonically active places on Earth,

resulting in a large number of volcanoes and hot springs. Earthquakes are frequent, but rarely cause

serious damage.

More than 200 volcanoes are located within the active volcanic zone stretching through the country from

the southwest to the northeast, and at least 30 of them have erupted since the country was settled. In

this volcanic zone there are at least 20 high-temperature areas containing steam fields with underground

temperatures reaching 200°C within 1.000 m depth. These areas are directly linked to the active volcanic

systems. About 250 separate low-temperature areas, with temperatures not exceeding 150°C in the

uppermost 1.000 m, are found mostly in the areas flanking the active zone. To date, over 600 hot springs

(temperature over 20°C) have been located (Figure 5.1.1).

Fig. 5.1.1. Volcanic zones and Geothermal Areas in Iceland.

96

5.2. The nature of ow-temperature Systems

The low-temperature systems are all located outside the volcanic zone passing through Iceland. The

largest of these systems are located in southwest Iceland on the flanks of the western volcanic zone,

but smaller systems can be found throughout the country. On the surface, low-temperature activity is

manifested in hot or boiling springs, while no surface manifestations are observed on top of some

systems. Flow rates range from almost zero to a maximum of 180 l/s from a single spring. The heat-

source for low-temperature activity is believed to be Iceland’s abnormally hot crust, but faults and

fractures, which are kept open by continuously ongoing tectonic activity, also play an essential role by

providing channels for the water to circulate through the systems, and mine the heat. The temperature

of rocks in Iceland generally increases with depth. Outside the volcanic zones the temperature gradient

varies from about 150°C/km near the margin to about 50°C/km farther away. The nature of low-

temperature activity may be described as follows: Precipitation, mostly falling in the highlands,

percolates down into the bedrock to a depth of 1 - 3 km, where the water is heated by the hot rock, and

subsequently ascends towards the surface because of reduced density. Systems of this nature are often

of great horizontal extent and constitute practically steady state phenomena.

The most powerful systems are believed to be localised convection systems where the water circulates

vertically in fractures of several kilometers of depth. The water then takes up the heat from the deep

rocks at a much faster rate than it is renewed by conduction from the surroundings. These fields are

therefore believed to be of transient nature, lasting some thousands of years.

5.3. Geothermal for Industrial use

Geothermal resources can be used for various activities, as can be seen from the picture. In Iceland it

has also been done, e.g. for greenhouses, fish farming, bathing etc.

97

5.4. Wells in use in Iceland

The average high temperature well is

1866 m deep, cased down to 1.585 m.

For low temperature systems in total

173 wells and 9 hot springs are used,

with an average well depth of 1055 m,

cased down to 223 m (Oddsdóttir and

Ketilsson, 2012).

See Figure 5.4.1 for wells that

generate electricity (red) and only heat

(blue) for district heating systems.

5.5. The History of

Geothermal District Heating Fuel for Heating Houses

In a cold country like Iceland, the need for space heating is greater than in most countries. In earlier

centuries, peat was commonly used for heating houses, as well as seaweed. This continued even after

the importation of coal for space heating was initiated after 1870. In the rural regions, the burning of

sheep-dung was common, as the distribution of coal or peat was difficult due to the lack of roads. The

use of coal for heating increased in the beginning of the 20th century, and was the dominating heat

source until the end of WWII. Oil for heating purposes first became significant after WWI, but by 1950

about 20% of families used oil for heating, while 40% used coal. At that time about 25% enjoyed

geothermal heating services. Coal was practically eliminated from space heating in Iceland around 1960.

Heating homes with electricity did not become common until larger electric power plants were erected

in the 1930s and 1940s.

Current Geothermal Heat Use

Geothermal utilization amounted to

28,1 PJ in 2014. Residential use

amounted to 13,3 PJ, commercial

services to 0,7 PJ, fisheries to 2,5 PJ,

industry 0,9 PJ and services 10,7 PJ

using IEA categories. Space heating

amounted to 20,0 PJ, swimming and

bathing 2,0 PJ, snow melting 2.0 PJ,

fish farming 2,5 PJ, industrial use 0,9

PJ and greenhouses 0,7 PJ.

0

20

40

60

80

100

120

1945 1955 1965 1975 1985 1995 2005

Geothermal heat

Electricity

GDP

Oil and coal

Figure 5.5.1. Development in GDP, used Electricity,

Geothermal Heat, Oil and Coal per capita 1945 – 2010.

Figure 5.4.1. Satellite image of Iceland in winter time illustrating geothermal production wells

in operation in year 2014 for geothermal power plants (red) and wells operated by heat utilities

with a natural monopoly for distribution of heat. Over 100 production wells operated by small

auto-producers are excluded.

98

Space Heating

Over the last 70 years, there has

been considerable development in

the use of energy for space heating

in Iceland. After WWII, The National

Energy Authority (Orkustofnun) and

Iceland Geosurvey (and their

predecessors) have carried out

research and development, which

has led to the use of geothermal

resources for heating of households

for 90% of the population. This

achievement has enabled Iceland to

import less fuel, and has resulted in

lower heating prices.

5.6. Public Support of Geothermal District Heating

Public Support towards Geothermal District Heating

Already by the 1940s, the State Electricity Authority promoted

geothermal development and carried out a regional survey of

geothermal areas suitable for space heating and explored

promising fields with exploratory drilling. The capital Reykjavik

obtained by law a monopoly on operating a geothermal heating

service in the town and took initiative in production drilling and

establishment of the first large geothermal district heating

system. The State guaranteed loans for the construction of the

system. In 1950 about 25% of families in the country enjoyed

geothermal heating services, 40% used coal and 20% oil for

heating. The cheap geothermal heating was attractive and

intensified the flux of people from rural areas to the capital.

To balance that, the national parliament approved an Act in

1953 on geothermal heating services in communities outside

Reykjavik which permitted the State to guarantee loans up to

80% of the total drilling and construction cost of heating services. Further, to encourage the

development, the State started a Geothermal Fund in 1961. The fund gave grants for reconnaissance

and exploratory drilling carried out by the Geothermal Department of the State Electricity Authority and

offered loans to communities and

farmers for exploratory and

appraisal drilling covering up to

60% of the drilling cost. If the

drilling was successful, the loans

were to be paid back with highest

allowed interests in 5 years after

the heating service was up and

running.

If exploratory drilling failed to

yield exploitable hot water, the

loan was converted to a grant

and not paid back. In this way the

fund encouraged exploration and

shared the risk. Within the next

10 years many villages used this support and succeeded in finding geothermal water. In 1967 the fund

Figure 5.6.1 Comparison of Energy Prices for Residential

Heating in Iceland in 2014

Figure 5.5.2. Relative share of Energy Resources in the

Heating of Houses in Iceland 1970–2014.

Oil

Orkustofnun Data Repository: OS-2016-T001-01

99

was merged with the Electricity Fund and named the Energy Fund. The Electricity Fund had since the

1940s supported electrification and transmission in rural areas. By 1970 about 43% of the nation

enjoyed geothermal heating, while oil was used by 53% of the population, and the remainder used

electricity. Space heating of residential buildings is subsidized by the state as shown in Figure 5.6.1. for

those areas where geothermal based district heating systems are not reachable. The lump sum for 8

years of this state subsidization has been available to support home owners to transform to renewable

heating (Act No. 78/2002). This has recently been increased by 50% to be equivalent of a 12 year lump

sum. In addition, if the project receives other grants it will not effect in any way this lump sum payment.

This has stimulated new geothermal based district heating systems to be installed, like in the town of

Skagaströnd, operated by RARIK, in 2013.

The Government’s role in Developing Geothermal Energy

The government has encouraged the exploration for geothermal resources, as well as research into the

various ways geothermal energy can be utilized. As stated earlier this work began in the 1940s at The

State Electricity Authority,

and has been in the hands

of its successor,

Orkustofnun (The National

Energy Authority), since its

establishment in 1967.

The aim has been to

acquire general know-

ledge about geothermal

resources and make the

utilizatin of this resource

profitable for the national

economy.

This work has led to great

achievements, especially

in finding alternative

resources for heating

homes. This progress has

been possible thanks to

the skilled scientists and

researchers at

Orkustofnun. After the

electricity market was

liberalized with adaption to

EC Directive in year 2003

Orkustofnun only

contracts research in the

field of energy and a new

state institute, Iceland GeoSurvey, was created which on a competitive basis takes part in projects

mainly for the energy companies and heat utilities but also for Orkustofnun. According to a new Energy

Act in 2003, the Energy Fund is now under Orkustofnun.

New and effective exploration techniques have been developed to discover geothermal resources. This

has led to the development of geothermal heating services in regions that were thought not to have

suitable geothermal resources. Iceland’s geothermal industry is now sufficiently developed for the

government to play a smaller role than before. Successful energy companies now take the lead in the

exploration for geothermal resources, either geothermal fields that are already being utilized, or

discovering new fields.

Fig. 5.6.2. Policy Priorities for Geothermal District

Heating in Iceland

1. Political, sectorial and public recognition / awareness for the importance for GeoDH Policy • For energy security, economic and environmental due to oil crises

1973-, the GeoDH policy was recognized, national and in main cities.

2. Loans (Grants) to GeoDH for exploration and test drillings have lowered the risk for GeoDH - improved implementation

• The National Energy Fund (NEF) has provided loans to exploration and

test drilling. If the drilling is unsuccessful, the loan can be written off.

3. Space heating support for homes which are out of geothermal areas

• Space heating of residential buildings is subsidized by the state for

those areas where geothermal energy is not available.

4. Policy to replace electricity (high exergy) for space heating

• Aims at reducing electricity (high exergy) for space heating and replacing it with geothermal heating (low exergy) and contributing to improved energy quality management.

5. Grants to individuals (apartments) for transformation to GeoDH – improved implementation

• Grant for 8 years accumulated support for transformation from electricity

heating to GeoDH or Heat Pump - is provided.

6. Grants to GeoDH companies (GeoDH Area) for transformation to GeoDH – improved implementation

• Grant for 12 years support transformation from electricity heating to

GeoDH

7. Some element of the policy has been changed, since it was first implemented.

100

5.6.1. Demo – Icelandic Geothermal District Heating Project in Operation

Enclosed is a demo, example of a geothermal district heating project in operation in Iceland. The demo

- example is related to small municipality in the countryside, with population of approximately 1.500

people. Despite the small size of the town, and therefore not much benefits of economic of scale, in

comparison to the cost of the investment (drilling etc.) – it is more economic to use this GeoDH than to

use other resources of heating, for example electricity or oil. See also figure 5.6.1. In Iceland there is

policy promoting the utilisation of GeoDH, as it is less costly than oil and electricity, and therefore more

economically beneficial in the long term, both for the concerning towns and the economy. In an addition,

it has great environmental effects as opposed to heating by oil.

Technical information

Population 1.500

Capacity 1,35 MWt

Water in temp. 60°C,

Water out temp. 30°C,

Well depth 1.000 meters

Production: 11.800 MWh/year (338.373 m3/year)

Production well 1

Pumping stations 3

Estim. primary pipeline 34 km

Estim. secondary pipeline 10 km

Heating period 10 months

Project Finance

Total project € 3,812 million

Grant € 0,880 million.

Project minus grant € 2,932 million

Grant % € 23%

CO2 Emission:

Estimated CO2 avoidance per kWh 193 g/kWh

Estimated CO2 avoidance per year 2.277 tonnes

Equal to CO2 bindings per year in 1,1 million trees

Equal to bindings in square kilometres of trees 5,4 per year

Equal to avoidance of burning oil equal to 760 tonnes (1 tonne of oil = 3 tonnes of CO2)

101

5.7. Economic impact

Influence of the Oil Crisis on Energy Prices

When the oil crisis struck in the early 1970s, fuelled by the Arab-Israeli War, the world market price for

crude oil rose by 70%. At the same time, close to 90.000 people enjoyed geothermal heating in Iceland,

about 43% of the nation. Heat from oil served over 50% of the population, the remainder used electricity.

In order to reduce the effect of rising oil prices, Iceland began subsidizing those who used oil for space

heating. The oil crises in 1973 and 1979 (Iranian Revolution) caused Iceland to change its energy policy,

reducing oil use and turning to domestic energy resources, hydropower and geothermal.

This policy meant exploring new geothermal resources, and building new heating utilities across the

country. It also meant constructing transmission pipelines (commonly 10-20 km) from geothermal fields

to towns, villages and individual farms. This involved converting household heating systems from

electricity or oil to geothermal heat. But despite the reduction in the use of oil for space heating from

53% to 7% from 1970 to 1982, the share of oil still remained about 50% to 60% of the total heating cost

due to rising oil prices.

The relative share of energy

resources used to heat

households has changed since

1970 (Figure 5.7.1). The increase in

geothermal energy is clear, but

after 1985 it has been steady for

heat use. However according to

Statistics Iceland a population

growth of 36% is estimated until

2050, and therefore the total heat

use is expected to increase by 70%

until 2050 to almost 50 PJ. The

proportion of the population using

geothermal energy is also

increasing, and could in the long run

rise from its present ratio of 89% to

92% for residential heating. The share of oil for heating continues to decrease and is at present about

1%. The share of electric heating is about 10% but one third of that comes from combined heat and

power plants using geothermal where electricity is used to heat water for district heating systems.

Primary energy use in Iceland has

increased by large amounts in the

last few decades. The primary

energy use in 2010 was

approximately 750 GJ per capita,

which is among the highest in the

world. Furthermore, when looking

at the share of renewables in total

primary energy use in the world, it

can be seen that Iceland has the

highest share, with 85%, the

average for Europe is 9%, USA

8%, Japan 3% and China 14%

see. Figure 1.3.2.4, earlier in this

report, chapter 1.

Figure 5.7.1. Primary Energy use in Iceland 1940 – 2014

Figure 5.7.2. Geothermal utilization in [PJ] for the period 2007‒2050 (Orkustofnun, 2015).

.

Source: Orkustofnun Data Repository: OS-2016-T002-01

Source: Orkustofnun

102

The predominant reason for this

is the large proportion of large

industries in the consumption of

electricity. Additional reasons are

the relatively large proportion of

electricity production from

geothermal, heavy energy use by

the fishing fleet and transportation

sector, and more need for energy

for space heating due to cold

climatic conditions.

Benefits of using Gothermal Heat instead of Oil

The economic benefits of the

government’s policy to increase

the utilisation of geothermal

energy can be seen when the

total cost of hot water used for

space heating is compared to

consumer cost if oil would be

used, as shown in Fig. 5.7.3. The

stability in the hot water cost

during strong variations in oil cost

is noteworthy.

In Figure 5.7.3 the blue line

shows price for geothermal

district heating, and the red line

the calculated price for heating by

oil,(adjusted to the consumer

price index 1 USD = 120 ISK).

Oil heating is 2-6 times more

expensive than geothermal

heating throughout most of the period but peaks to 16 times more expensive in the period 1973 to 1985

and has risen again since 2007 to a present ratio of 10. In 2012 the difference in cost amounted to 80%

of the state budget cost of health care in the same year.

Evaluations of the estimated

savings might vary somewhat as

some might claim that sources

other than oil could be used for

heating. Heating energy could

have been obtained through an

increased generation of electricity

with hydropower, as is done in

Norway.

Nevertheless, it is beyond dispute

that the economic savings from

using geothermal energy are

substantial, have had a positive

impact on the currency account

and contributed significantly to

Iceland’s prosperity, especially in

times of need. The annual savings have been in the range of 1-2% of GDP for most years but rise to

Figure 5.7.5. Cumulative Savings from Geothermal District

Heating in Iceland, 1914 – 2013 2% interests, fixed price 2013

Figure 5.7.4. Economic Benefits of

Geothermal District Heating

National Savings by Geothermal District Heating as % of GDP

Figure 5.7.3. Economic Benefits of Geothermal

District Heating

Price of a space heating by geothermal district heating

and by oil 1914 – 2013.

103

7% in the period 1973 to 1985, and have been nearing that peak again in recent years. The 7% of GDP

is equivalent to 3.000 USD per capita.

Besides the economic and environmental benefits, the development of geothermal resources has had

a desirable impact on social life in Iceland. People prefer to live in areas where geothermal heat is

available, in the capital area and in rural villages where thermal springs can be utilised for heating

dwellings and greenhouses, schools, swimming centers and other sports facilities, tourism and smaller

industry. Statistics show improved health of the inhabitants of these regions.

In recent years, the utilisation of geothermal energy for space heating has increased mainly as a result

of the population increase in the capital area, as people have been moving from rural areas to the capital

area. As a result of changing settlement patterns, and the discovery of geothermal sources in the so-

called “cold” areas of Iceland, the share of geothermal energy in space heating is still rising. It is also

possible to evaluate cumulative savings of geothermal district heating from 1914 – 2013, based on real

price (fixed price 2013) and 2% annual interest rate.

Based on these calculations, the

overall savings is equal to 31 million

ISK per family (€200.000), which is

equal to the price of an apartment for

a family (4 persons) in Iceland.

From 1982 – 2013 the majority of

savings has happened after the

geothermal district heating

implementation and is about 2.000

billion ISK. This is equal to 64 billion

ISK. (€412.000.000) per year, or

800.000 ISK (€5.160) per family, or

about 70.000 ISK. (€450) per month

per family, after taxes.

According to information from Statistics Iceland, 2.500 billion ISK, is equal to 80% of the total value of

all residential houses and apartments in Iceland which was estimated around 3.200 billion ISK in 2013.

CO2 Savings due to Geothermal District Heating

The use of geothermal energy for

space heating and electricity

generation has also benefited the

environment, as both geothermal

energy and hydropower have been

classified as renewable energy

resources, unlike carbon fuels such

as coal, oil and gas.

The benefit lies mainly in relatively

low CO2 emissions compared to the

burning of fossil fuels.

Since 1940 to 2014 the CO2 savings

by using geothermal district heating

have been around 100 million tons,

which is equal to saving of using 33

million tons of oil.

Figure 5.7.6. Reykjavik

104

In 2014 the geothermal district

heating savings of CO2 in

Iceland was about 3 million tons

of CO2, or equal to 1 million tons

of oil, equal to CO2 bindings in

1,5 billion trees and 7.150 km2 of

forest.

CO2 Savings due to

Renewables in Iceland

If we look at the accumulated

savings of CO2 by all renewables

in Iceland 1914 – 2014, that

savings is about 350 million tons,

mostly since 1944. That is equal

to CO2 bindings in 175 billion

trees, or 850 km2 of forest and is

equal to 120 million tons of oil.

In 2014 the annual savings of

CO2 from renewables in Iceland

was 18 million tons, equal to

bindings of CO2 in 9 billion trees,

equal to 43.000 km2 of forest. It

is also equal to 6 million tons of

oil.

These saved tons of CO2 have

been an important contribution for

mitigation of climate change, not

only in Iceland but on a global

level as well, as climate change

has no border between countries

or regions.

Geothermal District Heating in

Iceland and the use of other

renewables, contributes towards

economic savings, energy

security and reduction of

greenhouse gas emissions.

Fig. 5.7.9. The Annual Savings of CO2 2014 from

Renewables in Iceland was equal to bindings of CO2 in 9

billion trees, equal to 43.000 km2 of Forest or 41% of

Iceland.

105

6. Geothermal Development

6.1. Development in Iceland

Geothermal resources have only a minor share in the worldwide generation of electricity but they have

become of major importance in many volcanic regions which lack other resources for electricity

generation. Leading countries in this development have been Italy, USA, New Zealand, Mexico, the

Philippines, Indonesia, Iceland and Japan. In Africa, Kenya is the leading country but no development

has occurred in S-America despite its large potential.

The initial build-up of capacity worldwide was slow but accelerated in the seventies due to rising prices

of oil. In the last 25 years the capacity has increased on average by 250 MW per year. Compared to

solar energy and wind power the development has been slow, despite considerable support from funds,

public institutions and academic research. Science, technology and finance have not always succeeded

in outlining to possible investors the barriers and risks involved, and how they can be mitigated.

The successful development of geothermal electricity generation in Iceland has raised interest. A

country with 320 thousand inhabitants had in the year 2014 installed a capacity of 663 MW in geothermal

power plants. This occurs in a country with a large potential in hydropower. Generally the risk in

hydropower projects is considered less than in geothermal projects but the geothermal plants have the

competitive advantage of serving a base load with full availability throughout the year. Power plants in

Iceland have a total capacity of 2.637 MW, generating in total 18,12 TWh in year 2014. The share of

hydropower is 71% and that of geothermal 29% in electricity generation. Oil is only used for electricity

generation in emergency cases.

Iceland has an area of 103.000 km2. Two thirds of the population live in the capital area in the SW-part.

Other inhabitants are settled in a number of villages, mostly around the coast, and in rural areas.

Electrification has been developed over the last century. The country has many rivers draining water

from the mountainous inland and glaciers. The electrification was initially in the hands of communities

which erected small hydropower plants to serve their inhabitants but the networks were not

interconnected.

Geothermal district heating started on a small scale in Reykjavík in 1930 and today Reykjavík Energy

operates the largest municipal district heating system. The system serves about 195.000 people in the

capital area with hot water. From 1998 electricity has been co-generated from geothermal steam along

with hot water at Nesjavellir. However, about 70% of the energy used for district heating comes directly

from low temperature geothermal fields, and about 30% from heating up cold water in CHP plants using

geothermal energy as the primary energy source.

Figure. 6.1.1. The Reykjavik District Heating System

Hellisheidi

Power Plant

Pipeline 27 km

106

A major change occurred in 1965 when the State and the capital Reykjavik established Landsvirkjun

(the National Power Company) with the aim of building larger power plants and interconnecting the

countrywide electrical networks. The company built a hydropower plant of 210 MW to provide electricity

for an aluminium smelter in 1969, with financial support from the World Bank. Landsvirkjun has

continued developing hydropower and geothermal power to serve energy intensive industries. The

installed capacity in hydropower in Iceland is now 1.895 MW. The company also operates one 60 MW

geothermal power plant.

Other major power companies are Reykjavik Energy with 423 MW installed in two geothermal power

plants and HS Orka operating two geothermal power plants of a combined 176 MW electric capacity.

Three of the geothermal plants combine generation of electricity and production of hot water for space

heating. Smaller companies operate hydropower plants with a total capacity of about 80 MW.

The State and municipalities own 93% of the installed capacity but only 7% are in the hands of the

private sector. The electricity market is dominated by a few energy intensive industry companies which

buy 77% of the production. The risk of having few customers is balanced by power purchase agreements

(PPA) which ensure steady use of energy and sales over decades. This leads to high utilisation factors

in the power plants, about 75% in the hydro power and 90% in the geothermal plants. Long term

contracts with trustworthy companies have also eased financing of the power projects.

Figure 6.1.3. The Hellisheiðarvirkjun Geothermal Power Plant

303 MW Electric and 133 MW Thermal for Space Heating

Figure 6.1.2. The Nesjavellir Geothermal Power Plant in Iceland,

120 MW Electric and 300 MW Thermal for Space Heating

107

6.2. Drilling for Geothermal Water and Steam

First attempts to drill wells in geothermal areas in Iceland began as early as in the year 1755 when

exploration wells were drilled in search for sulphur near the Laugarnes hot springs in Reykjavík and in

the high temperature field Krýsuvík on the Reykjanes Peninsula. In Krýsuvík the hole reached 10 m

depth and erupted a mixture of steam and clay. Drilling with percussion rigs for potable water in

Reykjavik shortly after 1900 was not successful but rumors that the boreholes had encountered traces

of gold led to the purchase of a new percussion drilling rig which was nicknamed the “gold drilling rig”.

The Reykjavik Electricity Service became interested in drilling as they learned of successful drilling for

steam in Lardarello in Italy to generate electricity. They bought the “gold drilling rig” and used it to drill

14 wells in the hot spring area of Laugarnes in Reykjavík 1928–30. The deepest well was 246 meters.

No steam was found but the wells yielded significantly greater artesian flow of hot water than the hot

springs prior to drilling. This success led to the first step in geothermal heating of houses in Reykjavik

in 1930.

Until 1986 nearly all drill rigs were operated by the State Drilling Company. The emphasis was on

discovering hot water for space heating all over the country. The wells were located near hot springs

and also in regions where exploratory surveys and drilling indicated a high geothermal gradient. Some

drilling also took place in the high temperature fields. Exploratory wells were drilled in Reykjanes to

provide hot brine for a sea chemicals factory.

Drilling for cogeneration of hot water and electricity took place at Svartsengi and Nesjavellir and wells

were drilled in Krafla to provide steam for the generation of electricity. There the drilling ran into

difficulties because volcanic activity caused an influx of corrosive gases into the geothermal reservoir.

The drilling company was privatized in 1986 and now operates as Iceland Drilling Ltd but several other

smaller drilling companies have also been established.

These smaller firms have overtaken most of the drilling in hot spring areas whereas Iceland Drilling Ltd has emphasized drilling boreholes in the high temperature fields. Among recent innovations in drilling technology are downhole hydraulic turbines that are driven by the circulation fluid and can rotate the drillbit much faster than the rotating string. This technique yields a faster penetration rate and also allows for inclined directional drilling to intersect

targets off the drilling platform. A cluster of wells can thus be drilled to different directions from the same

drilling platform. Another novelty used in shallow holes is pneumatic hammers implanted with carbide

Figure 6.2.1. Generation of Electricity using Geothermal Energy 1969–2014

108

balls that hammer the whole bottom several thousand times per minute and give a penetration rate of

10–30 m/hour.

The first geothermal unit was a 3 MW back pressure turbine installed in Bjarnarflag in 1969. The Krafla

plant (2x30 MW) was constructed in 1975-1977 but volcanic activity injected reactive gases into the

reservoir and made the best part of it unexploitable for the next 15 years. The first unit began operating

in 1977 but the second unit was not installed until 1997. The project was financed by the State with the

purpose of providing electricity for northern part of Iceland.

These difficulties were discouraging for further construction of geothermal power plants while there was

more feasible potential available in hydro power. HS Orka installed several small units at Svartsengi for

cogeneration with the production of hot water for space heating. This escalated with a 30 MW unit

installed in 1999 and another in 2007, bringing the total capacity up to 76,4 MW. Reykjavik Energy also

began cogeneration with hot water production at Nesjavellir with 2x30 MW units installed in 1998, and

two more 30 MW units in 2001 and 2005.

Until 2003 only Landsvirkjun could sell electricity to the energy intensive industry but this changed with

the new Electricity Act in 2003 which opened the door for competition between Icelandic energy

companies serving that industry. Increased demand from the aluminum industry led HS Orka to build a

100 MW geothermal plant at Reykjanes in 2006 and Reykjavik Energy to build the Hellisheidi plant of

303 MW in the years 2006 to 2011. Without this increased demand from the aluminum industry the

development of geothermal power plants in Iceland would have been much slower as the domestic

market did not call for more than a minor increase in generation. Nowhere else do aluminum smelters

rely as much on geothermal plants for electricity as in Iceland.

More than 300 wells have been drilled in steam fields for production. Of those 208 are deeper than 500

m, 36 reach more than 2.000 m and six beyond 3.000 m. In hot water fields about 860 production wells

have been drilled. Thereof 291 are deeper than 500 m, 19 reach more than 2.000 m and one beyond

3.000 m. Wells drilled in search of high temperature gradients are more than 2.600. Most of them are

shallower than 100 m but some exceed 1.000 m in depth. These wells are rarely intended for production.

Steam field drilling for generation of electricity has dominated in the last decade as can be seen in Figure

6.2.2. In 2008 31 wells were drilled in six steam fields with a combined depth of 67 km.

Figure 6.2.2. Number of Wells Drilled in High Temperature Fields 1970–2008

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6.3. Success of High Temperature Geothermal Wells in Iceland

Recent report from ISOR (Sveinbjornsson, 2014), presents data on success rates in drilling 213

geothermal production wells and 21 injection wells drilled in seven high temperature fields in Iceland.

The data was classified using the same criteria as in the International Finance Corporation (IFC) 2013

Report on the success of geothermal wells from 14 countries. A production well was deemed successful

when it had sufficient capacity to be connected and utilized in the respective power plant. Injection wells

that have shown a good injectivity or have been used for reinjection were deemed to be successful.

The main conclusions of the report were as follows: Of the 213 production wells analyzed, 158 or 74%

were deemed to be successful. None of the fields has a success rate below 50%. About 6% of the total

wells failed because of drilling problems, 4% found inadequate temperatures, 10% could not be operated

at high enough static pressure, 3% had too low permeability and 3% were so shallow that they did not

reach the reservoir.

The average success rate

improves from 43% for the

first well to 60% for the

first five wells and reaches

a plateau of 74% after the

fifteenth well. The first five

wells drilled in a field are

classified as Exploration

Phase, the next 25 as

Development Phase and

wells drilled thereafter as

Operation Phase. The

Exploration Phase has the

most variable well

success rates, which has

though improved in recent

decades. The probability

of successful wells in the

Development Phase is

nearly 80%. It increases

until the year 2000 but declines after that. The same trend is observed for wells drilled during the

Operation Phase. The reduction in the success rate may reflect step-out wells or rapid development

where adequate results did not arrive in time to impact the drilling plan.

The average capacity of all 213 drilled production wells is 4,9 MWe but 6,7 MWe for the 158 productive

wells. The capacity has a lognormal distribution with a mean and most likely value of 4,8 MWe and a

standard deviation of 2,3 MWe. The cumulative average capacity increases from 2,5 to 4,8 MWe during

the Development Phase, and reaches 4,9 MWe during the Operation Phase.

The five main operating geothermal power plants in Iceland have a ratio of installed capacity divided by

number of drilled production wells ranging from 1,3 to 5,3 MWe/well and a weighted average of 3,5

MWe/well. Wells of 2.000‒2.500 m drilled depth have the highest average capacity of 5,8 MWe followed

by wells of 1.500-2.000 m with an average capacity of 5,5 MWe. Wells with a regular production casing

diameter of 200‒250 mm have an average capacity of 5,5 MWe whereas wells with a large casing

diameter of 300–350 mm have a capacity of 8,9 MWe.

The average capacity of directionally drilled wells is 6,1 MWe compared to 4,0 MWe in vertical wells.

There is a clear increase in capacity with increased enthalpy. Wells drilled into steam caps above two-

phase reservoirs at 230‒240°C have the highest capacity of 11,0 MWe and a 100% success rate. Wells

in two phase reservoirs with T>300°C, are with an average of 6,2 MWe and 86% success rate.

Figure 6.3.1. Success Rate and Problems of Production Wells

in Iceland

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7. Legal and Institutional Framework in Iceland

7.1. Introduction

A recent paper presents the current legal framework and national policy for geothermal development in

Iceland (Ketilsson, 2015) where a broad overview is given.

The development of geothermal energy in Iceland has been on-going for many decades. Considerable

experience and technical skills have been accumulated but the legal framework is fairly recent. Despite

the lack of appropriate legislation, access to natural resources has led to an exceptionally high

proportion of renewable energy in the country’s total energy utilisation. Adaptation to the growing

geothermal industry, as well as implementation of directives and regulations from the EU have called

upon new laws and reorganisation of authorities and institutes. As this history and the resulting legal

and institutional framework can be a useful reference for other countries which are considering

geothermal development a short description is presented here.

The Act on Survey and Utilisation of Natural Resources (the Natural Resources Act) entered into force

in 1998, replacing the Mining Act from 1973. The main reason for the new act was to declare the

ownership of the country´s natural resources after many years of debate in the Parliament on how the

matter should be handled.

The Electricity Act entered into force in 2003, thereby implementing European legislation, according to

the Agreement on the European Economic Area (EEA) which has since entering into force in 1994

provided for an active Europeanization for Icelandic society. The new act replaced the Energy Act from

1967 and was grounded on new perspective in the electricity sector. It’s main objective was to liberalize

the market for generation of electricity and retail while having the transmission and distribution regulated

as natural monopoly.

Many other acts affect the sector of geothermal energy exploration and utilisation. Mainly the

Environmental Impact Assessment Act and the Act on Master Plan for the Protection and Utilisation of

Natural Resources. Other acts relating to the sector are, among others, the Nature Conservation Act

and the Planning Act.

Figure 7.1.1. Public Administration in Iceland, related to Geothermal Development

111

7.2. The Act on Survey and Utilisation of Natural Resources

The ownership of resources in the ground is attached to a private land, while on public land resources

in the ground are the property of the State of Iceland, unless others can prove their right of ownership.

Even though the ownership of resources is based on the ownership of land, Orkustofnun can grant

licenses anywhere for the research and utilisation of the resources according to the Act on Survey and

Utilisation of Natural Resources, No. 57/1998 and the Electricity Act, No. 65/2003. Survey, utilisation

and other development pursuant to these Acts are also subject to the Nature Conservation Act, Planning

and Building Act, Environmental Impact Assessment Act and other acts relating to the survey and

utilisation of land and land benefits.

The Natural Resources Act covers resources in the ground, at the bottom of rivers and lakes and at the

bottom of the sea within netting limits. The Act also covers surveys of hydropower for the generation of

electricity. The term resource applies to any element, whether in solid, liquid or gaseous form, regardless

of the temperature at which they may be found.

The State, municipalities and companies, entirely owned by them, are prohibited to sell directly or

indirectly the ownership of geothermal and ground water more than for household or agricultural use. A

landowner may exploit geothermal energy, without permission, on his or her private land for household

and agricultural use, including for greenhouse cultivation, industry and cottage industry, up to 3,5 MW

of thermal energy based on the heat extracted from the ground within private land.

Figure 7.2.1. Ownership, Resource Control, Operation and the Grid

112

Research License

According to the Natural Resources Act Orkustofnun is permitted to take the initiative in and/or give

instructions on surveying and prospecting for resources in the ground anywhere in the country,

regardless of whether the owner of the land has himself or herself begun such surveying or prospecting

or permitted other such surveying or prospecting, unless the party in question holds a valid research

license pursuant to the Act. A research license confers the right to search for the resource in question

within a specific area during the term of the license, survey the extent, quantity and potential yield and

to observe in other respects the terms which are laid down in the Act and which Orkustofnun considers

necessary.

Therefore Orkustofnun can issue a research license even if the land owner has not agreed to it himself

unless he has a valid research license. If the land owner, on the other hand, decides to prospect himself

he does not need a license but is only required to inform Orkustofnun of the research scheduled. Before

granting a license Orkustofnun must confer with the landowner, the Environment Agency of Iceland, The

Icelandic Institute of Natural History and in some cases the Institute of Freshwater Fisheries. Only one

person or legal entity can be granted a license in one area during the term of the license. More than one

person or legal entity can be granted such a license if they have applied for the license jointly and have

agreed upon dividing the prospecting cost.

Orkustofnun can grant a pre-emptive right to a utilisation license if the foreseen exploitation is for space

heating. The pre-emptive right can last for up to 2 years after the research license expires which also

prevents others to be granted research license in the respective area. In order to be granted a research

license, the applicant must file the exploration scheme which he will then need to comply with, shall he

be granted a license. In the case of non-compliance the license holder must ask Orkustofnun for an

alteration in the scheme or Orkustofnun can cancel the license.

Utilisation License

The utilisation of resources in the ground is subject to a license from Orkustofnun, whether it involves

utilisation on private land or public land, with the exceptions provided for in the Natural Resources Act.

A landowner does not have the priority to an utilisation license for resources on his or her land, unless

such an owner has previously been issued a research license. The utilisation license permits the license

Figure 7.2.2. Role of Orkustofnun as a Licensing Authority and the two Ruling Committees

that can be appealed to.

113

holder to extract and use the resource in question during the term of the license to the extent and on the

terms laid down in the Act and regarded necessary by Orkustofnun.

Before the holder of an utilisation license begins extraction on private land the holder needs to reach an

agreement with the landowner on compensation for the resource or obtain permission for expropriation

and request assessment. In the event of neither an agreement made on compensation nor expropriation

requested within 60 days immediately following the date of issue of an utilisation license, the license

shall be cancelled. The same applies if utilisation on the basis of the license has not started within three

years of the issuance of the license. This also applies to the utilisation of resources on public land. With

these limitations, a license holder cannot reserve areas, and in the same manner withhold the exclusive

rights to exploit the areas in question. Orkustofnun has therefore the power to cancel the license shall

there be a non-compliance with the exploitation scheme presented in the application for the license.

If a landowner has himself explored the resources on his or her land or allowed it to others, but an

utilisation license has not been granted, the land owner or the one who did the research, can demand

that the utilisation license holder reimburses him the cost for the research useable to him or her.

Orkustofnun may revoke the above license if their conditions are not fulfilled. If a license holder does

not comply with the conditions established in the license or contracts relating to the license, Orkustofnun

shall issue a written warning and provide time limits for rectification. Should the license holder not comply

with such a warning, the license shall be revoked.

Recent Amendments to the Law

In 2008 the Parliament decided to prevent any further sale of water resources, including geothermal

energy, to private entities. As of that same year, all natural resources that were not privately owned were

guaranteed to remain in the possession of the State. As described previously the State can grant

licenses for utilisation, for up to 65 years, according to the Act on Survey and Utilisation of Natural

Resources. As of that same year the Parliament also decided to implement into the Act, a clause stating

that the Minister of Energy could delegate the power to grant licenses to Orkustofnun. Prior to that time,

the Minister himself granted such licenses.

The decisions made by Orkustofnun, deriving from the newly granted power, could be appealed to the

Ministry for revision. In that way, the civilians had the possibility to have a decision revised in the

administrative sector and without having to turn to the courts. Another amendment that same year

dictates that CHP power plants are obliged to keep separate accounts for heat and power production to

prevent cross subsidisation of electricity. Producers of electricity compete in an open market in Iceland

whereas the heat is sold based on a natural monopoly license within a certain area, therefore it is

necessary to keep financial records separate. In 2012, the Parliament decided to move that same

license granting power to Orkustofnun by amending the law, making Orkustofnun fully independent in

its decision making. Such decisions can today be appealed to the Appeals Committee for Environmental

and Resource Matters.

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7.3. The Environmental Impact Assessment Act

The Environmental Impact Assessment (EIA) Act has been set to implement the EU-EIA directive (now

Directive 2011/92/EU). In the act, projects listed in Annex I are classified into three categories, A, B and

C, according to the size, location and/or nature of the project. Category A projects are always subject to

an EIA whereas projects in categories B and C are subject to a decision by the National Planning Agency

whether they should be assessed.

In short, the procedure is as follows: The applicant notifies the Planning Agency of a project which may

be subject to assessment. The Planning Agency has 4 weeks to decide upon its answer. If the project

is subject to such an assessment, the applicant submits a scoping document proposal as early as

possible in the preparatory stage of the project. Again the Planning Agency has 4 weeks to decide

whether the proposal is approved or not. If the proposal is approved the applicant shall compile a report

on environmental impact assessment of the proposed project.

The Planning Agency then has only 2 weeks to assess whether the report meets the criteria provided

for in the act and is consistent with the scoping document. If it does meet the criteria it shall be publicised

and subjected to written comments from anyone. The applicant shall then respond to the written

comments, possibly by altering the document in accordance. Within 4 weeks of receiving the

environmental impact statement, the National Planning Agency shall deliver a reasoned opinion on

whether the report meets the criteria of the Act and regulations and whether the environmental impact

is satisfactorily described.

Decisions on individual steps of the environmental impact assessment procedure, i.e. on whether a

project is subject to an assessment, decisions of the NPA on suitability of scoping document and EIA

report, can be appealed to the Appeals Committee on Environmental and Resource Matters. The

reasoned opinion of the NPA is however not prone to an appeal.

7.4. Act on Master Plan for the Protection and Utilisation of Energy

Resources

Earlier energy developments in Iceland were focused on meeting the basic energy needs of the society

for space heating and electricity for the general market. Through the years it has become more and

more evident that utilisation of energy resources (as other development) must take into account not only

the energy needs and the economic aspects of the development, but also a range of other interests as

well. This includes other use of land and the impact of the development on the environment and the

cultural heritage. The first step towards such an evaluation was undertaken by a collaboration committee

of specialists from the Ministry of Industry, the National Power Company, Orkustofnun and the Nature

Conservation Council. This committee was active during the 1970’s to the 1990’s. It discussed plans for

various electrical power plants with special emphasis on the natural conservation aspects of the projects.

A general view on the energy policy and the nature conservation policy was needed for the country. This

became even more important by 1994 when the Parliament of Iceland passed the first Act on

Environmental Impact Assessment. The Icelandic Government published a white paper on sustainability

in the Icelandic society in 1997. There the need of the development of a long term Master Plan for

energy use in Iceland was once again stressed. All proposed projects should be evaluated and

categorized on the basis of energy efficiency and economics, as well as, on the basis of the impact that

the power developments would have on the environment.

A Master Plan of this kind is comparable to the planning of land use and land protection. It is not

supposed to go into the details required for environmental impact assessment (EIA). The vision is to

prepare an overview of the various potential energy projects in hydro and geothermal and to evaluate

and rank these based on their energy and economic potential, feasibility, national economy and the

115

estimated impact that each project would have on nature, environment, cultural heritage and the society,

as well as the potential for other uses of the areas in question.

The Master Plan should be based on the best available scientific information and conclusions should be

transparent and reproducible and made available to the public. It was considered of vital importance to

establish public confidence in the evaluation process. The Master Plan aims to identify power projects

that rank high from an economical point of view, have a minimum negative impact on the environment,

and a positive impact on the society. Such a score card for the energy projects helps decision makers

to filter out which of the proposed projects are likely to become controversial and disputed and which

ones not. It also directs the attention to those project areas that might have protective value and should

be left untouched by the power industry.

Master Plan

The Government decided to use the work on the Master Plan to establish a permanent planning tool,

with regular re-evaluation phases followed by subsequent confirmation of the Master Plan by Parliament.

For that purpose, a new Act on a Master Plan for Protection and Development of Energy Resources

was passed in Parliament in May 2011. According to the act the Minister for the Environment, shall in

co-operation with the Minister of Industry, at least every four years, propose a Master Plan to the

Parliament. The plan shall divide the different projects in three categories, projects for utilisation, projects

awaiting further research or projects in areas appropriate for protection. A total number of 84 potential

power projects was evaluated during the second phase in 2011 and a Master Plan ranking 28

hydropower projects and 38 geothermal projects was approved by the Parliament in 2012.

The Master Plan only covers projects that have the potential of at least 10 MW electric or at least a

thermal potential of 50 MW. The plan is binding for all municipalities and is to be included in their general

land use plans. Administrative bodies can grant licenses relating to projects that are categorized for

utilization and all research that does not require licenses can be carried out. Administrative bodies

cannot grant licenses for projects that await further research if the intended work requires assessment

of environmental impact. Research that does not require licenses can be carried out in these areas with

the same restriction. Administrative bodies cannot grant any licenses for projects that are in areas

Figure 7.4.1. Flow Diagram Illustrating the Processes around the Master Plan

116

categorized for protection except for a limited research license for prospecting on surface without

affecting the environment.

The flow diagram in Figure 7.4.1 illustrates the processes from an idea to realization of a power plant or

a decision on conservation of an area. In the first step, Orkustofnun sets forth ideas for an advisory

Steering Committee. Private or state owned companies can suggest the projects to Orkustofnun and

Orkustofnun can also suggest projects on its own. At this point only, the basic ideas on location, power

and larger structures related to each project is defined. Master Plan details such as the feasibility of the

geothermal systems or environmental assessments are not necessary for the process at this point. The

steering committee is advisory to the minister and it makes suggestions regarding which resources in a

designated area, should be utilized, protected or further studied. The Committee reports to the minister

of Environment, who may pass the suggestions on to the parliament with or without some changes. The

final decision on each project is made by the parliament and is valid until a new parliamentary decision

has been made.

All of the projects can be reevaluated at least every four years until the municipalities have adjusted

their regional plans, the projects have been realized or the area where the project is located has been

protected against projects of this kind The municipalities could also take the initiative to designate a

certain area for protection and another area for reevaluation. This process of reevaluation is necessary

because increased understanding on the effects of these projects can result in different decisions

regarding utilization or conservation.

The proposal of the Steering Committee must be justified by solid arguments for the decision regarding

each project. Before presenting the proposal to the Minister of Environment the Steering Committee of

the Master Plan must both ask for written comments and publicize the draft proposal. If the Minister of

Environment decides to make changes to the Steering Committee, the new proposal shall be publicized

and written comments shall be asked for again. After the confirmation of the Parliament, the Master

Plan is valid and binding for all parties for up to four years, unless the Parliament changes its resolution.

The municipalities are required to adjust their regional plans accordingly within 15 years from the

decision of the Parliament.

Figure 7.4.2 Renewable Energy Master Plan Projects Options for Utilisation

Geothermal

Wind

thermal

Hydropower

117

Figure 7.4.2 illustrates the options set forth by Orkustofnun in 2015 for the Steering Committee of the

third evaluation process; it involves 48 hydro power plants (blue dots), 33 geothermal power plants (red

dots) and two windfarms (yellow dots). In some cases, there are more than one scenarios for each of

the hydro power plants but those variations account for only one dot on the map. The Steering

Committee has publicized a draft report for comments and a final report is planned to be finished in the

autumn of 2016.

8. Competitiveness, Internationalisation and Clusters of the

Icelandic Geothermal Sector

8.1. Iceland, WB and NDF - International Geothermal Cooperation in Africa

The Icelandic International Development Agency (ICEIDA) and the Nordic Development Fund (NDF)

launched in 2012 a project to support geothermal exploration in East Africa. ICEIDA is the Lead Agency

in the Geothermal Exploration Project with joint co-financing of NDF. The project is the initial phase of

the Geothermal Compact partnership, initiated jointly by the Ministry for Foreign Affairs in Iceland and

the World Bank. The World Bank's Energy Sector Management Assistance Program (ESMAP) serves

as the focal point at the Bank for the Compact.

13 countries in East Africa Rift Valley

The geothermal potential in Africa is mainly in the East Africa Rift Valley States (EARS) covering 13

countries from Eritrea in the north to Mozambique in the south. The project aims to mitigate and distribute

the risk associated with geothermal exploration thus contributing to the acceleration of geothermal

development in the region.

The main objective of the Geothermal Exploration Project is to assist all EARS countries in completing

the exploratory phase of geothermal development and build capacity and expertise in the field of

geothermal utilization and related policy. The project support will extend up to the stages of exploratory

drilling.

The project will be demand-driven and activities funded by the project will be based on specific requests

from governments in the countries of the region. Project funding can cover the following activities:

1. Reconnaissance and geothermal exploration leading up to exploratory drilling.

2. Technical assistance and capacity building:

a. Training, e.g. through the UNU Geothermal Training Programme.

b. Institutional capacity building.

c. Policy and legal framework for geothermal utilization.

Five years

The financial framework for the project is estimated at USD 13 million over a period of five years. The

project could extend to 13 countries in the East Africa Rift Valley: Burundi, Comoros, Djibouti, DR Congo,

Eritrea, Ethiopia, Kenya, Malawi, Mozambique, Rwanda, Tanzania, Uganda and Zambia.

At the end of the project it is expected that participating countries have 1) a realistic assessment of

potential geothermal sites, 2) plans for further action where applicable, and 3) capacity to move forward

on the basis of those plans and submit exploration drilling projects into funding pipelines. The

Geothermal Exploration Project formally started in January 2013.

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8.2. Clusters and Competitiveness of the Icelandic Geothermal Sector

In 2010, Dr. Michael Porter and Dr. Christian Ketels performed an analysis of the Icelandic geothermal

cluster in cooperation with Gekon, an Icelandic consulting firm. Nearly 60 different stakeholders within

the cluster were involved in the project. According to the results Iceland is naturally uniquely situated in

terms of access to a quality resource.

The term cluster is

defined as a geographical

group of companies and

associated institutions in a

particular field, linked by

commonalities and com-

plementarities. In a cluster

there is a system of

interconnected firms and

institutions whose value

as a whole is greater than

the sum of its part. The

cluster policy has been

part of the structure of the

Icelandic economy for two

decades. So far, such

work has mainly been

formed by local conditions

and initiated by the

government. In recent

years this development has grown towards more private governance of clusters, and now several

clusters in Iceland are governed by private partners, e.g. the Geothermal Cluster, Ocean Cluster, the

Tourism Cluster and the Health Cluster. (Institute, 2014) 43

The high percentage of

geothermal energy as

proportion of Iceland's

total primary energy

consumption is unique in

the world. Most of the

development of geo-

thermal utilization in

Iceland has occurred for

the last one hundred

years or so, especially in

the latter half of the 20th

century. Iceland is a

strong player in the global

geothermal market, en-

joying the benefits of a powerful geothermal cluster. The cluster's strength consists of a developed

system for using geothermal energy in multiple ways, experienced specialists, and a strong international

reputation and network. The cluster's weaknesses include poor access to capital, a lack of critical mass

of companies, a complex domestic market environment, and fragmented educational activities.

(Gunnarsson Hákon, 2011).

43 Geothermal Cluster - http://www.gekon.is/, Ocean Cluster - http://sjavarklasinn.is/en/, Regional Clusters - http://www.byggdastofnun.is/is/verkefni/vaxtarsamningar

Figure 8.2.1. The Icelandic Geothermal Cluster

Table 8.2.1. Some of the Icelandic Geothermal Cluster Expertise

http://www.gekon.is/

http://sjavarklasinn.is/en/

http://www.byggdastofnun.is/is/verkefni/vaxtarsamningar

119

A cluster can contribute to national competitiveness efforts that include policy reform, trade capacity

building, a private-public dialogue, regional economic development, workforce development, technology

and trade development, drive export etc. Competitive Clusters may well be one of the most effective

tools in a broader context of policy reform and other private sector development initiatives.

The importance of clusters has grown rapidly in recent years to increase competitiveness, growth and

productivity, as a reaction to increased competition in all areas and sectors, more globalisation, and

rapid changes in technology, services and trade. The cluster competitiveness model can be used in

many different ways to increase competitiveness and growth of companies.

One possibility is to use the enclosed model to analyse the seven main framework conditions in the

geothermal sector;

1. Authorities and regulation.

2. Access to geothermal resources.

3. Scientific & technical factors.

4. Companies, management, expertise & industry, clusters assessment.

5. Education & human factors.

6. Access to capital.

7. Infrastructure and access to markets, sectors and other clusters.

8. Access to international markets and services.

By evaluation of these seven factors of the geothermal competitiveness in the concerning country, it is

possible to highlight the key weaknesses and strengths of the frameworks conditions as a base for the

formulation of a better competitiveness policy for the geothermal sector; to increase competitiveness,

growth, jobs, productivity and quality of life.

Figure 8.2.2. The Competitiveness of Icelandic Geothermal Cluster

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8.3. International Cooperation of the Icelandic Geothermal Sector

8.3.1. International Work and Projects of the Business Sector

As global warming poses a threat to the world, it is now mostly acknowledged that an increased use of

renewable energy could play a key role in reducing this development. Geothermal energy can play a

significant role in the electricity production of countries and regions rich in high-temperature fields which

are associated with volcanic activity.

Capacity building and transfer of technology are key issues in the sustainable development of

geothermal resources. Icelandic emphasis in bi-lateral development assistance has therefore focused

on geothermal energy and cooperation with countries that have unexploited geothermal resources. The

objective is to assist them in developing their renewable energy resources. In addition, several Icelandic

companies make it their business to export geothermal and hydropower know-how and experience.

Icelandic experts participate in geothermal projects worldwide, and have contributed to the world’s best

known geothermal projects. Geothermal experts from Iceland are now at work in the United States,

China, Indonesia, the Philippines, Germany, Hungary, Djibouti, Eritrea, Nicaragua, and El Salvador to

name but a few examples.44

44 Examples of Engineering and Consulting Companies:

Icelandic Geosurvey – www.isor.is

Mannvit – www.mannvit.is

Verkís – www.verkis.is

Efla – www.efla.is

Reykjavik Geothermal, www.rg.is/

Energy and Contracting Companies:

Iceland Drilling – www.iceland-drilling.com

Icelandic State Electricity – www.rarik.is

HS Orka – www.hsorka.is

Landsvirkjun Power – www.lvp.is

Reykjavik Energy – www.or.is

Energy Institutions / Cooperation Platforms

Orkustofnun, (National Energy Authority) – www.os.is

Iceland Geothermal Cluster http://www.icelandgeothermal.is/

http://www.isor.is/

http://www.mannvit.is/

http://www.verkis.is/

http://www.efla.is/

http://www.rg.is/

http://www.iceland-drilling.com/

http://www.rarik.is/

http://www.hsorka.is/

http://www.lvp.is/

http://www.or.is/

http://www.os.is/

http://www.icelandgeothermal.is/

121

8.3.2. EEA Grant Cooperation in Eastern Europe

Through the European Economic Area (EEA) Agreement, Iceland, Liechtenstein and Norway are

partners in the internal market with the 28 EU member states. Ever since the establishment of the EEA

Agreement in 1994, Iceland, Liechtenstein and Norway have provided funding to reduce social and

economic disparities in the EEA. The expansions of the EU in 2004 and 2007 brought a 20% increase

in the EU's population, but only a 5% increase in GDP. The EEA and Norway Grants, are helping to

reduce disparities. The funding is targeted on areas where there are clear needs in the beneficiary

countries.

Orkustofnun (National Energy Authority), work as EEA Donor Program Partner

Funded by the EEA Grants, Hungary, Portugal and Romania will work together with the National Energy

Authority of Iceland to

develop and exploit the

potential of geothermal

energy in their countries.

With its expertise in securing

long-term sustainable use

of geothermal resources,

the National Energy

Authority in Iceland will, as

a Donor Programme

Partner, offer assistance in

creating, implementing and

monitoring geothermal

resource management

plans in these three

beneficiary states. This

cooperation aims at

securing long term sustainable yield of the geothermal resource.

Renewable Energy Supported by EEA Grants

In the EEA Grants scheme, €135 million has been set aside in eight countries for projects that promote

energy efficiency and the share of renewable energy in the energy mix, in line with the EU/EEA, Europe

2020 targets. Renewable energy comes in many forms. Both Iceland and Norway have had great

success with hydroelectric energy and Iceland is a pioneer in harnessing geothermal energy.

Geothermal energy sources account for 68% of Iceland’s primary energy use.

Figure 8.3.2.2. The launch of the EEA Grants in Hungary 2013. The

Hungarian State Secretary for Energy, Attila Imre Horváth, the

Icelandic Foreign Minister Gunnar Bragi Sveinsson, the

Norwegian Ambassador Tove Skarstein and Guðni A.

Jóhannesson, Director General of the Icelandic Orkustofnun.

Fig. 8.3.2.1. The EEA Grants and the Beneficiary and the Donor Countries

http://eeagrants.org/Results-data/Results-overview/Documents/Legal-documents/Agreements-on-the-EEA-and-Norway-Grants/EEA-Agreement

http://eeagrants.org/Results-data/Results-overview/Documents/Legal-documents/Agreements-on-the-EEA-and-Norway-Grants/EEA-Agreement

122

Example of a Renewable Program within the EEA Grant Programme – the RONDINE

On Tuesday, November 26, 2013, the RONDINE (RO 06) Renewable Energy Program was launched

in Romania. The aim of the RONDINE Program, which is based on the EEA Grants 2009 - 2014, is to

promote sustainable use of natural resources and reduce emissions of greenhouse gases through the

use of renewable energy, by hydro- and geothermal projects. The program is operated by the Romanian

Environmental Fund Administration, EFA.

What will the Programme Achieve and who are the Beneficiaries?

The programme will increase the share of

renewable energy in energy generation in

Romania. This will be done by way of

financially supporting the construction or

refurbishment of three or more small scale

hydropower plants in order to make them more

efficient. Moreover, the programme will

support the construction of one or more

geothermal heat plants in areas where there already is a heat distribution system in place. The new or

refurbished plants, will contribute to the replacing of fossil fuels with renewable energy. The programme

will benefit local public administration, local institutions, enterprises and households.

Example of one Geothermal Project in Romania

An example is the geothermal project in the

city of Oradea, which is one of the biggest city

in western Romania with 200.000

inhabitants. One of the biggest universities in

Romania (with 20.000 students) is located in

the city. The aim of the project is to install

pumps in an existing borehole, as well drilling

injection wells, to utilize hot water for heating.

The additional geothermal fluid that will be

extracted will be used for the city district heating system to reduce the use of coal, the current fuel being

used.

Orkustofnun

http://www.nea.is/the-national-energy-authority/international-relations/

Ministry of Foreign Affairs

http://www.utanrikisraduneyti.is/verkefni/evropumal/verkefni/nr/4582

EFTA / FMO / EEA Grants

http://eeagrants.org/

Figure 8.3.2.3. The launch of the EEA Grants in

Romania 2013. Jónas Ketilsson, Project

Manager from NEA Iceland, the Icelandic

Minister of Industry and Commerce,

Ragnheiður Elín Árnadóttir and Adrian

Gearap, President of EFA.

Figure 8.3.2.4. The launch of the EEA Grants

in Azores Islands (Portugal) 2013. The

Icelandic Minister of Industry and

Commerce, Ragnheiður Elín Árnadóttir and

others from Azores and Iceland.

Figure 8.3.2.5. The City of Oradea, in Romania

http://www.nea.is/the-national-energy-authority/international-relations/

http://www.utanrikisraduneyti.is/verkefni/evropumal/verkefni/nr/4582

http://eeagrants.org/

123

8.3.3. UNU – GTP Programmes

The Geothermal Training Programme of the United Nations University

(UNU-GTP) is a postgraduate training programme, aimed at assisting

developing countries in capacity building within geothermal exploration

and development. The annual programme consists of six months training

for practicing professionals from developing and transitional countries

with significant geothermal potential. Priority is given to countries where geothermal development is

under way, in order to maximize technology transfer. The programme has operated in Iceland since

1979. It is a cooperation between the United Nations University and the Government of Iceland and is

hosted by the National Energy Authority (Orkustofnun).

The UNU-GTP has three main activities: The Six Month Training Programme

MSc and PhD Fellowships

Workshops and Short Courses

The core focus of the UNU-GTP is an annual six month specialized training programme initialized in

1979. New countries are continuously added in the training but care is taken not to spread the efforts

too thin. Experience strongly suggests that it is necessary to build up groups of ten or more geothermal

specialists in a given country in order for technology transfer to be successful and sustainable.

In association with the Six Month Training Programme a leading specialist in geothermal energy is

invited every year to give a series of lectures over a duration of one week on a specific geothermal

subject. The lectures are open to all interested in geothermal sciences.

The UNU-GTP also offers an opportunity for outstanding fellows to pursue their MSc and/or their PhD

degree through a cooperation with the University of Iceland (UI) and Reykjavík University (RU). The Six

Month Training Programme counts 25% towards the MSc degree.

The United Nations University Geothermal Training Programme (UNU-GTP) can support the Ukraine in

strengthening the skills of experts who are tasked with the responsibility of carrying out geoscientific

exploration, utilizing and managing geothermal resources. Since its inception in Iceland in 1979, the

programme has graduated 515 fellows from 53 countries. The fellows have obtained both a broad

overview of the major geothermal disciplines as well as committing to in-depth studies in one or more

of the nine available lines of specialization, which are: Geothermal geology, reservoir engineering,

geophysical exploration, borehole geophysics, reservoir engineering, environmental studies, chemistry

of thermal fluids, geothermal utilization, drilling technology and project management and finances.

Figure 8.3.3.1. UNU-GTP Fellows in Iceland, 1979-2014 – 583 from 58 Countries

124

8.3.4. ERA Net Cooperation

The Geothermal ERA-NET is a cooperation started on May 1st 2012 within the EEA Agreement, and will last for four years. It is estimated that the project will support geothermal research in Europe - that could lead to greater cooperation between energy agencies and ministries in Europe and make it possible for them to work on common goals. The Geothermal ERA NET focuses on direct use and higher enthalpy uses of geothermal energy. The general vision of the Geothermal ERA NET is as follows:

Minimize the fragmentation of geothermal research in Europe.

Build on European know-how and know-who to utilize geothermal energy

Contribute to a framework to realise large opportunities in the utilization of geothermal energy

through joint activities.

Geothermal energy utilisation accounts for 68% of energy consumption in Iceland, and one could say

that the potential that this energy source holds for this country is largely deployed. Italy also has a

significant geothermal production and ranks fifth in the world for geothermal electricity production. After

Turkey, Iceland and Italy, Hungary is ranked at 4th place regarding geothermal direct use in Europe.

For all other participating countries, geothermal energy is an energy source with potential.

All the countries have ambitious

agendas for an increase of the

market for geothermal energy.

In all the ERA NET countries except

for the Netherlands and Slovenia,

this includes a significant growth in

electricity production using

geothermal energy.

Up to 2020, the Netherlands will

focus on direct use. In all

participating countries, there are

policy instruments in place to

forward geothermal energy

utilisation. This includes R&D

efforts, but in some countries also

soft loans or guarantee funds.

125

The Geothermal ERA NET program

is split into 7 Work Packages:

1. Coordination and Management

2. Information exchange on national

incentives and status on geothermal

energy

3. Towards a European Geothermal

Database

4. Development of Joint Activities

5. Coordination with Stakeholders

6. Transnational Mobility and

Training

7. Implementation of Joint Activities

“It is important for policymakers and

others to recognise the great

opportunity geothermal heating gives

regarding savings for countries, as it

is estimated that geothermal heating

in Iceland is saving equal to 7% of

GDP or 3.000 USD per capita or close

to 1 billion USD for the economy only

for 2012. It has also been estimated

that renewables for heating and

cooling could save EUR 11,5 billion

per year within EU, improve the

energy security and mitigate climate

change”, says Guðni A Jóhannesson

Geothermal ERA NET coordinator.

More information regarding the

program and progress can be seen at

the website.

www.geothermaleranet.is/

http://www.geothermaleranet.is/

126

8.3.5. Additional International Geothermal Promotion

For many years the authorities in Iceland e.g. the Ministry of Industries and Innovation and its

Ministers, has strongly supported the geothermal sector in various forms, at domestic level by

highlighting the importance of the sector in policy making as well as implementation for harnessing the

geothermal resources both for electricity generation and district heating.

The Icelandic authorities have also supported various events on renewables and seminars at

international level, with conferences trade missions etc. For example Ragnheiður Elin Árnadóttir,

Minister for Industry and Innovation, chaired an Icelandic delegation on a visit to Nicaragua in November

2014, focusing on geothermal and hydro where she signed a Memorandum of Understanding (MoU) on

Renewables Cooperation with Mr. Daniel Ortega, President of Nicaragua.

http://eng.atvinnuvegaraduneyti.is/

The Ministry for Foreign Affairs and its ministers

have also supported the geothermal sector, especially

in the form of international aid, by helping several

developing countries to harness geothermal

renewable resources, by education and capacity

building in cooperation with United Nations University

Geothermal Training Programme (UNU-GTP),

International Financial Institutions (IFI) and various

countries. It has also be done by meetings and

conferences at international level. http://www.mfa.is/

The presidents of Iceland have also highlighted the

importance of the geothermal renewable resources at

various occasions at domestic and international

levels, at meetings, conferences and other occasions,

especially in recent years. http://english.forseti.is/

Íslandsstofa, Promote Iceland offers the business

community various marketing and trade promotional

services, including the organisation of trade fairs and

business delegations, in-depth consulting, training

programmes and market information.

http://www.islandsstofa.is/en

Such policy support and awareness raising through

the years for the harnessing the geothermal resources

by ministers, ministries and the presidents, is valuable awareness building at domestic and international

level. This has also assisted concerning countries, regions and stakeholders to further utilisation of

geothermal resources, to mitigate climate change and increase energy security, economic opportunity

and savings, and quality of life.

Figure 8.3.5.1. Left - Ragnheiður Elin Árnadóttir, Minister of Industry and Innovation and Daniel

Ortega President of Nicaragua. Right – the Icelandic Delegation in Nicaragua.

Figure 8.3.5.2. Mr. Gunnar Bragi

Sveinsson, Minister for Foreign Affairs,

with United Nations Secretary-General

Mr. Ban Ki-moon, at Hellisheiðarvirkjun

in Iceland.

Figure 8.3.5.3. Mr. President, Ólafur

Ragnar Grímsson, at the World Future

Energy Summit.

http://eng.atvinnuvegaraduneyti.is/

http://www.mfa.is/

http://english.forseti.is/

http://www.islandsstofa.is/en

127

9. Capacity Building in Iceland

To promote and build up confidence in geothermal development it is essential that a governmental

institute leads the regional survey for promising geothermal fields and evaluates the geothermal

potential. This institute is required to encourage and supervise the first steps in exploration and

demonstrate the methodology and value of the first geothermal development.

After this initial phase of encouragement confidence in geothermal development may have reached the

stage that private investors and entrepreneurs are willing to take over projects. Then the role of the

governmental institute changes to supervision and administration of the development like what has

occurred in Iceland in the last few decades. For the initial phase of the regional survey for promising

geothermal fields and evaluation of the geothermal potential, an institute with a staff with specialized

training in geothermal exploration and sustainable development is needed. The main disciplines

required are:

Geological exploration Practical training in basic geological and geothermal mapping, which is commonly the first step in the geothermal exploration of an area.

Geophysical exploration Practical training in conducting geophysical surveys of geothermal areas and/or interpretation of such data.

Chemistry of thermal fluids Thermal fluid chemistry in geothermal exploration and exploitation, including sampling, analysis of major constituents and the interpretation of results.

Drilling technology Selection of drilling equipment, well design, casing programs, cementing techniques, cleaning and repairs of production wells.

Borehole geology Training in making geological logs, analyses of drill cuttings and cores. Identification of alteration minerals (microscope and x-ray diffraction) and interpretation of the alteration mineralogy.

Borehole geophysics Geophysical measurements in boreholes used for geothermal investigations, with an emphasis on temperature and pressure measurements.

Reservoir engineering Hydrological characteristics of geothermal reservoirs and forecast of the long term response of the reservoirs to exploitation

Environmental studies Environmental impact assessments (EIA), laws and policies, the planning and execution of EIA projects and environmental auditing. Environmental monitoring, biological impact, pollution and occupational safety.

Geothermal utilisation Civil, mechanical and chemical engineering aspects of geothermal fluids in pipes, equipment and plants. Feasibility of projects and environmental factors.

Law Legal and institutional framework. Laws on survey, protection and utilization of natural resources, environmental impact assessment.

Financial analysis and planning of geothermal projects.

Project Management.

General geothermal framework assessment, evaluation and development.

128

Training in these disciplines is offered at the United Nations University Training Programme (UNU-GTP)

in Iceland and at many universities in other countries that have pursued geothermal development. The

candidates for UNU-GTP must have a university degree in science or engineering, a minimum of one

year practical experience in geothermal work, speak English fluently, and have a permanent position at

a public energy agency/utility, research institution, or university. In selecting the participants the UNU-

GTP sends representatives to the countries requesting training.

The potential role of geothermal energy within the energy plans of the respective country is assessed,

and an evaluation made of the institutional capacities in the field of geothermal research and utilisation.

Based on this, the training needs of the country are assessed and recipient institutions selected. The

directors of the selected institutions are invited to nominate candidates for training in the specialized

fields that are considered most relevant to promote geothermal development in the respective country.

Further information on the UNU-GTP is attached in an Appendix.

When confidence in the geothermal development has reached the level that private investors are willing

to take over in projects, the role of the governmental institute changes to supervision and administration

of the development along the lines defined in laws like the Act on Survey and Utilisation of Natural

Resources in Iceland. At this stage the institute will require staff trained in legal affairs, economy and

business administration. The exploration and appraisal of geothermal fields would then be carried out

by specialized consultants but the institute would still require staff members with expertise in geothermal

development to handle issues of granting licenses and supervision of the operating holders of licenses.

10. Conclusions and Lessons Learned in Iceland

Ownership, Pricing and Financing

In Iceland the energy sector has been built up by companies owned by the State or municipalities where

the aim has been to utilize the natural energy resources for development and offer energy to the public

at favourable prices, both electricity and hot water for space heating. In financing larger projects the

owner of the respective energy company has given its guarantee and provided long term loans on

favourable terms from development banks and commercial banks.

Profitability and Savings for Economy and Citizens

The energy companies have not returned much profit on their equity, but companies and the public have

enjoyed a relatively low energy price and a tremendous development has taken place in energy intensive

industries and related services. The economic savings from using geothermal energy in space heating

in Iceland are substantial, and have contributed significantly to Iceland’s prosperity, especially in times

of need. The electricity price in Iceland is among the lowest in Europe.

Risks

Geothermal projects require considerable initial capital and investment long before the stream of

income. The risk involved in new geothermal projects is generally a major barrier for the development

as well as the difficulty persuading independent power producers (IPP) and investors to accept the risk

and complete the total financing.

Cooperation

Geothermal development requires balanced cooperation of many disciplines such as geosciences,

engineering, law and finance. This balance has though not always been reached. In many countries the

legal framework and regulatory directives are incomplete or not existing. Conferences are held on

science and technology but the discussion of finance, contracts and legal framework is often limited. As

a result scientists and engineers have limited understanding of finance and the financial experts know

little of the nature of resources and the applied technology. A description of the financial aspects gives

decision makers basic understanding of the assumptions and risk involved in geothermal projects and

aids in finding methods to reduce the risk and utilize opportunities in the geothermal development.

129

Administration

To promote and build up confidence in geothermal development it is essential that a governmental

institute leads the regional survey for promising geothermal fields and evaluates the geothermal

potential. This institute is required to encourage and supervise the first steps in exploration and

demonstrate the methodology and value of the first geothermal development. When the geothermal

development reaches the stage that private investors and entrepreneurs are willing to take over projects,

the role of the governmental institutes changes to supervision and administration of the development. It

is vital for carrying out an effective law on the sector of geothermal energy, that the administrative body,

responsible for the regulation and official monitoring of the law, be active and visible to those subject to

regulation. It is also very important that this same body has effective remedies to bring into actuality

each article of the act. Lastly, an appeals committee is important to give the regulator the necessary

restraint.

Due to uncertainty it is

important that the planning

process for utilization takes

above mentioned factors into

account as well as the fact that

the environmental effects can

sometimes be difficult to

predict. Therefore, the licenses

issued need to take that into

consideration and active

cooperation is needed be-

tween the developer and the

authority to mitigate unfore-

seen effects. The licensing

authority also needs to make

sure that the economic model of the plant takes into account the uncertainty of reinjection strategies,

gas emissions and rate of make-up well drilling to ensure that the developer will be able to run the

facilities properly and within requirements stipulated in the legal framework and the licenses issued.

Financial Factors

The risk involved in new geothermal projects is generally a major barrier for the development as well as

the difficulty persuading independent power producers (IPP) and investors to accept the risk and

complete the total financing. Geothermal projects require considerable initial capital and investment long

before the stream of income.

The World Bank, development banks, and development agencies have examined how they can best

assist new geothermal projects in developing countries.

To explain this complicated problem one must present clearly the basic assumptions and results of

financial analyses. It must be clear what matters most and which assumptions are essential. Case

histories from countries which have attained successful development may be of help in that respect.

The case of Iceland is a good example, since in many countries the conditions for development may be

similar to those in Iceland some 40 years ago. For comparison it may also be worth to examine why

countries that have most of the natural conditions required have not succeeded in their development.

130

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